China’s FX Reserves Drops Most in 10 Months; Yuan at 8 Year Lows

Whether it’s because China is rigging their currency or staving off capital flight from the mainland, the yuan is dropping almost every day now v the dollar, which is having a deleterious effect on FX reserves. But don’t feel too bad for the great wall’d nation of dog eaters just yet. They still have north of $3t of our dollars stashed away — as we swim in their cheap shit purchased at Walmart.

Reserves plunged by $69.1b to $3.05t in November, the most since January, when the future for China and global trade was bleak and markets got off to the worst start to a new year ever. Good times.

Rigged economics

When China lost $99b in January, people freaked the fuck out, thinking the end was near and how China would fast run out of cash — as the capital flight picked up steam. Those fears were soon quelled, as the communist command economy slapped the shit out of anyone who dared move large sums of money out and the global hegemony of QE whisked the markets’ problems away.

The fifth-straight monthly decline brings the reduction in the stockpile to almost $1 trillion from a record $4 trillion in June 2014. While authorities have begun tightening capital controls, a $50,000 limit that Chinese citizens are allowed to convert from yuan annually will reset at the start of the new year, potentially adding depreciation pressure on the currency.

“Containing capital outflows is the key to keeping China’s systematic risk in check,” Harrison Hu, chief greater China economist at Royal Bank of Scotland Group Plc in Singapore, wrote in a note after the data. “Market turmoil one year earlier showed the strong feedback loop between capital flight and currency depreciation can destabilize China’s financial system and lead to escalating systemic risk.”

“The announcement of additional capital controls will smooth the fall in reserves for some time but won’t solve the problem,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA in Hong Kong. “China isn’t out of the woods.”

“I smell more capital controls, which run against any hopes of reform or internationalization of the yuan or a sharp drop in the yuan,” said Michael Every, head of financial markets research at Rabobank NA in Hong Kong. “And all these fun and games come before we have even seen President Trump.”

The drop in reserves was due mainly to the PBOC injecting foreign-exchange funds into the market, non-dollar currencies falling against the U.S. dollar after the election, and falling bond prices, according to a statement from the State Administration of Foreign Exchange, which executes currency policy.

The yuan fell 1.55 percent last month, the most since a devaluation in August 2015.

These parlour tricks the PBOC played might’ve been ignored by the flaccid Obama administration, who was solely focused on expanding globalism and bringing forth a new world order under the banner of deranged liberalism, but they might not be received with open arms under a Trump administration who was obsessed with China’s currency manipulation schemes throughout his Presidential campaign.

We’re in for interesting times.