1/7
Interesting article about the tactics the PBoC has developed over the past few years to manage the RMB while avoiding direct intervention. These tactics are largely why reserves have been flat since 2017, in spite of major shifts within China's BoP.
ft.com
Interesting article about the tactics the PBoC has developed over the past few years to manage the RMB while avoiding direct intervention. These tactics are largely why reserves have been flat since 2017, in spite of major shifts within China's BoP.
ft.com
2/7
But while these tactics allow the PBoC to disguise its intentions, and presumably to make it harder for speculators to coordinate their responses, polices that reduce transparency can work well during times of stability and can backfire when things go wrong.
But while these tactics allow the PBoC to disguise its intentions, and presumably to make it harder for speculators to coordinate their responses, polices that reduce transparency can work well during times of stability and can backfire when things go wrong.
3/7
For example the article cites one trader as saying: βYou canβt really touch the state reserves, which are closely watched β that would trigger waves of panic and be counterproductive for regulatorsβ efforts to guide market expectations.β
For example the article cites one trader as saying: βYou canβt really touch the state reserves, which are closely watched β that would trigger waves of panic and be counterproductive for regulatorsβ efforts to guide market expectations.β
4/7
By limiting their need to intervene directly to manage the currency, in other words, the PBoC may make it harder for speculators to know when the currency is vulnerable, but at the same time it may dramatically increase the signaling effect of any direct intervention.
By limiting their need to intervene directly to manage the currency, in other words, the PBoC may make it harder for speculators to know when the currency is vulnerable, but at the same time it may dramatically increase the signaling effect of any direct intervention.
5/7
This means that if the PBoC were to run out of indirect ways of intervening, and were forced to sell reserves directly to defend the RMB, the market may well over-interpret that as signaling that PBoC's ability to manage the RMB has already been badly compromised.
This means that if the PBoC were to run out of indirect ways of intervening, and were forced to sell reserves directly to defend the RMB, the market may well over-interpret that as signaling that PBoC's ability to manage the RMB has already been badly compromised.
6/7
This kind of signaling can cause panic just when conditions are at their most unstable. This is not something we need to worry about today, but it's worth remembering that policies that look smart when conditions are good may seem smart just because they are pro-cyclical.
This kind of signaling can cause panic just when conditions are at their most unstable. This is not something we need to worry about today, but it's worth remembering that policies that look smart when conditions are good may seem smart just because they are pro-cyclical.
7/7
Central banks always wish they could more effectively disguise their behavior, but because markets learn to take this into account, transparency becomes counter-cyclical. While reducing transparency can sometimes be helpful, over the longer run it may be destabilizing.
Central banks always wish they could more effectively disguise their behavior, but because markets learn to take this into account, transparency becomes counter-cyclical. While reducing transparency can sometimes be helpful, over the longer run it may be destabilizing.
PBoC concerns about speculative flows in the currency.
centralbanking.com
centralbanking.com
Loading suggestions...