While everyone remains sure that the PBOC is actively trying to “allow” the yuan to depreciate as some kind of export catalyst, the “dollar” continues to show (not suggest) otherwise. Liquidity and “dollar” markets are still roiled rather than soothed, especially the US treasury market where the bid right at the open (what look very much like continued collateral calls) pushes more like a combination of October 15 and January 15.
As if to underscore the runaway nature, the PBOC apparently intervened against this “devaluation” just last night. From the Wall Street Journal:
Tuesday, the People’s Bank of China surprised global markets with what looked like a win-win currency depreciation for the country—appearing to cede more control of its exchange rate to market forces, which the International Monetary Fund and others have long urged it to do, while also helping Chinese exporters.
Its intervention only one day later raised questions about its commitment to an exchange rate driven more by supply and demand and less by government direction.
The Journal’s confusion here is demonstrated by what is a mistaken assumption in the first paragraph leading to the mystery of the second. The PBOC’s commitment isn’t to a devaluation for China’s exports, but undoubtedly its actions are directed toward trying to keep the wholesale finance interfaces somewhat orderly. When the yuan was trading exactly sideways for nearly five months, that was the same setup; the PBOC was keeping the yuan stable so that it wouldn’t devalue and thus signal the depth of the “dollar” financing strain.
That is the problem orthodox commentary and theory has with wholesale finance, they just don’t get it. Devaluation of currency doesn’t mean that in this context just as a “strong dollar” isn’t anything like the term. Both are forms of internal disruption, the direction of that is just