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The Wall Street Journal has an excellent piece on China’s currency, the Yuan (or Renminbi).
China has declared war on offshore speculators betting against its currency. But it is merely attacking a symptom, not the root causes, of its currency woes.
Over the past two days, China’s central bank has intervened aggressively in the market for yuan traded offshore—mostly in Hong Kong—known by traders as CNH. Acting through state-owned banks, it has bought massive quantities of CNH, successfully closing the yawning gap that had opened up between the yuan’s value in Hong Kong and in mainland China.
This gap—the CNH last week was trading at a discount of more than 2%—was a source of embarrassment to the People’s Bank of China. It showed that international markets were spooked, and didn’t believe its assurances that there is “no basis” for continued yuan depreciation.
Growth is slowing and interest rates are falling in China, driving down investment returns available there, even as the U.S. is set to keep raising rates. As a result, money is naturally leaving China and seeking better returns elsewhere.
But will tinkering with the onshore/offshore Yuan cure global concerns about slowing economic growth? Its a million to one (or Yuan).
Then you have HIBOR, the Hong Kong version of LIBOR. Sheesh! It is now 15.763 (compared to US 1M Libor of 0.424.
This is indeed a MONSTER HIBOR(E).
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