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China Sells U.S. Treasuries to Support Yuan
- gwbas1c 11y agoGosh, I'd love to see other people's opinions on this article!
- mrits 11y ago"China sells to China"
- dageshi 11y agoWell pretty much the purpose of those reserves is to maintain their currency peg so selling in order to do so is no surprise.
- deleted 11y ago[deleted]
- beauzero 11y agoThey are not trying to maintain their currency peg. They are slowly devaluing to eventually decouple (see IMF year delay comments). The treasury sales, which no one other than China really knows why, are continuing at an extremely rapid pace and the best guess is they are using it to inject liquidity into their market in order to prop up their stock market bubble.
- dageshi 11y agoThe Chinese care more about the ability to "control" their peg than they do anything else. What they don't want under any circumstances is a black market exchange rate that differs substantially from the official rate. Because once you have that the government no longer controls the exchange rate. So they have devalued a relatively small amount and now they must maintain the peg at the new level, if that means selling a boat load of treasuries to do so, so be it, that's the purpose of holding the treasures. To your point on selling USD denominated debt to prop up the stock market.. why? They Chinese stock market is denominated in Chinese Yuan, not USD, if they wanted to prop up the market they could just print the yuan and buy stocks, they don't need to sell Treasuries at all to do that.
- deleted 11y ago[deleted]
- jhulla 11y agoSell Treasuries --> USD Cash What is being done with the USD Cash generated after the sale? Are the Chinese immediately selling the USD Cash to local CNY holders in order to defend the peg? What do they do with it next? Is the new USD Cash leaving Chinese borders? Does it stay in local accounts - eventually to be used to buy up other USD denominated assets?
- chkuendig 11y agoas the article says, they try to keep the yuan up. so they sell treasuries and buy yuan with the usd from the sales. (what they then do with the yuan doesnt matter, its theirs anyway)
- jhulla 11y agoWhat is not clear is this: 1. Who is selling the CNY for USD? Specifically is it another arm of the government? 2. More importantly: what is the new holder USD allowed to do with their newly acquired USD cash pile? Are they allowed to transfer it out of the country? Or are they required to keep it in USD, but it in Chinese banks? Are their restrictions on what they can buy?
- chii 11y ago> Who is selling the CNY for USD? i m guessing currency traders, who sees a good deal selling their CNY for USD for more than they purchased the CNY prior.
- URSpider94 11y agoThe CNY are coming from the open market, people who have yuan and want to have dollars. Since it's the open market, they can do whatever they want with those dollars after the trade. Thus, this is putting more dollars into circulation.
- leereeves 11y agoI assume China is making these trades in the foreign exchange market. (Which is like a stock market for trading currencies.) https://en.wikipedia.org/wiki/Foreign_exchange_market https://en.wikipedia.org/wiki/Foreign_exchange_market If so, anyone could be on the other side of the trade, including other governments, banks, speculators, investors, and businesses. The USD are transferred to the other party, out of China if appropriate.
- Elrac 11y agoThis article necessarily has a lot of business jargon content, and I'm having trouble parsing it. Could somebody with subject knowledge please summarize the article in terms a simple hacker can understand, and speculate a bit on the possible ramifications?
- CmonDev 11y agoA bunch of numbers stored on different servers will change. No ramifications for non-wealthy people.
- leereeves 11y agoThe state of China's economy (of which this action is a small part) has a lot of ramifications.
- dekhn 11y agoTreasuries are securities that the US government sells. It's a piece of paper you can buy, that promises the US government will pay you back, with interest (simplification) at some point in the future. People with spare cash (which goes down in value over time) can put their money into Treasuries, with a very high expectation they'll get some some interest over their invested principle. US Treasuries are considered a very good "stable" investment in that the risk of not getting back your interest or principal is very very low. China bought a lot of these when they had lots of spare cash. These things involve so much money and are integrated in the US monetary system that rapid changes of their ownership can have big impact in US economy (world's largest) as well as large markets (big simplification; there is a bunch of macroeconomic theory, as well as a bunch of irrational behavior that causes shifts in markets). By selling these, the supply of treasuries will go up, which will probably reduce their value, which will have ripple-through effects on the economy. Beyond that it's truly hard to evaluate the specific ramifications. The stock market is constantly evolving around a large number of indenpdent agents most of which behave irrationally.
- msandford 11y ago> The stock market is constantly evolving around a large number of indenpdent agents most of which behave irrationally. I think they actually behave rationally, but all according to different fact-bases. People usually don't say "this is really dumb but I'll do it anyhow" most of the time, most of the time they really believe that they're doing something pretty rational. But a lot of times they have incomplete, ignorant, or just plain crazy fact bases from which they operate. Or in the case of China, they want to defend their currency peg. You might disagree with their decision to peg, but if you accept for a moment that this is their goal, then it's super rational.
- myth_buster 11y ago“Strategically, it probably has been China’s intention to find the right time to lighten up its excessive accumulation of U.S. Treasuries,” he said. I think that is the crux of it. They are itching to move away from dollar and any excuse to do so is used. This has also been tied with AIIB & they accumulating a large amount of gold to back up their currency to be the base denomination for global trade.
- deathhand 11y agoI am sure current crude prices also help.
- blumkvist 11y agoYou've been reading way too much "falling of the petrodollar" blogs.
- myth_buster 11y agoGuilty as charged. I've Currency Wars [0] in my reading list. [0] http://www.amazon.com/Currency-Wars-Making-Global-Crisis/dp/1591845564 http://www.amazon.com/Currency-Wars-Making-Global-Crisis/dp/...
- mark_l_watson 11y agoJames Rickard's Currency Wars, and The Death of the Dollar are interesting reads. I have given copies to family members because even if Rickard's is not totally correct, his analysis is interesting.
- norea-armozel 11y agoIs there any economist blogging about this move yet? My question is what are the possible outcomes of this sale for the economy as a whole?
- 001sky 11y agolowering demand for us paper means higher interest rates. higher interest rates in the us means devaluation of foreign (non us currency), all other things equal. us is going to slow gdp when interest rates go up (look at fed...they are scared). so this is basically a stealth currency deval and a shot accross the bow to obama (sitting admin will take the hit if gdp in us goes south). typically, this is crytpic and below the radar type of stuff but almost certainly is meant to broadcast a message. just my $0.02.
- norea-armozel 11y agoI don't think China has much of a choice to be honest. They're still not able to get a Chinese middle class to buy goods made at home at the rate they want. So, I think their economic program of being the world's factory floor has been a failure so far. They (Chinese Community Party) really need to rethink their strategy and look towards other methods of improving the living standard because it just doesn't look like their brand of market socialism is working (I'm using the term market social very loosely here).
- 001sky 11y agoAre you asking about china's economy as a whole or the impact on the us/oecd? i think that makes a difference in how best to answer the question.
- norea-armozel 11y agoIt's more of an observation in regards to what seems to be the CCP's end goal of lifting all of China's people out of poverty. It's been sacrificing services like healthcare and education to get their economy up and running, but it seems to only benefits only a few of China's citizens. So, I just wonder if the CCP has given up on the goal of socialism to communism.
- deleted 11y ago[deleted]
- adeptima 11y agoWhat Would Happen If Everyone Joins China In Dumping Treasurys? ttp://www.zerohedge.com/news/2015-08-26/what-would-happen-if-everyone-joins-china-dumping-treasurys
- 001sky 11y agothis is a double post of your own post https://news.ycombinator.com/reply?id=10129397 https://news.ycombinator.com/reply?id=10129397
- adeptima 11y agoWhat Would Happen If Everyone Joins China In Dumping Treasurys? http://www.zerohedge.com/news/2015-08-26/what-would-happen-if-everyone-joins-china-dumping-treasurys http://www.zerohedge.com/news/2015-08-26/what-would-happen-i...
- tptacek 11y agoCan someone provide a bad-case source that isn't from ZeroHedge?
- throwaway1967 11y agoWhy do you dismiss the content out of hand based on where it came from? ZeroHedge could be the most accurate source for bearish analysis you can get.
- ath0 11y agoAnd maybe also not written by someone named "Tyler Durden"?
- mikeyouse 11y agoIzabella Kaminska writes some pretty good China posts for the Financial Times, her Twitter is worth a follow; https://twitter.com/izakaminska https://twitter.com/izakaminska But the best round-up of China lately I've seen is from Christopher Balding, a professor in Peking University's business school: http://www.baldingsworld.com/2015/08/14/end-of-week-thoughts-on-a-big-week/ http://www.baldingsworld.com/2015/08/14/end-of-week-thoughts... Basically, a lot of wait and see, but China's headline reserves aren't nearly as impressive as they sound and things could get interesting if they lose much more value.
- jakozaur 11y agoFederal Bank already owns more USA debt than any other country: https://www.nationalpriorities.org/campaigns/us-federal-debt-who/ https://www.nationalpriorities.org/campaigns/us-federal-debt... http://qz.com/384232/guess-who-holds-even-more-us-debt-than-china-or-japan/ http://qz.com/384232/guess-who-holds-even-more-us-debt-than-... At worst Federal Bank will need to print more money (as know as quantitive easing) and buy more treasuries from the government.
- beauzero 11y agoyes...this. there is an argument that we are balanced on a knifes edge right now. if the fed goes by their previous metrics, today's growth numbers would indicate that a September hike is back on the table. if they are worried about treasury sales from china increasing we may have another round of quantitative easing. this is why the market is so sketchy right now. nobody knows what is going to happen because they are almost exact opposite directions to take.
- debacle 11y agoWhy would we counter inflation from China with QE?
- at-fates-hands 11y agoI guess the big story here is that people have been warning they would do this voluntarily in some attempt to punish the US and drive down the value of the yuan and drive up the interests rates so they can continue to undercut US businesses. The fact they have been forced to do this is another scenario all together. This brings up an important question: What happens when the bidders who are absorbing all this paper, stop bidding? Then what does the Fed with all this paper in a highly liquid market? Make no mistake though, this is the game the Chinese like to play with their currency in order to keep the value of the dollar high and the yuan low. Back in early 2015, they did the same thing: http://www.breitbart.com/national-security/2015/02/19/trade-war-china-dumped-77b-in-us-bonds-to-devalue-yuan/ http://www.breitbart.com/national-security/2015/02/19/trade-... Federal Reserve data published late on February 18 reveals China dumped about $75 billion in US bonds in the last six months of 2014 Breitbart broke the story last week that China’s real economic growth had crashed to 1.7% in the fourth quarter of 2014. We also warned last August that China appeared ready dump part of its $1.32 trillion holdings of US bonds in a scheme to drive American interest rates up; thereby strengthening the dollar and devaluing the Chinese currency.
- deleted 11y ago[deleted]
- hiou 11y agoI think we just learned what that stock market drop in the US was about.
- hodwik 11y agoThe drop in the US stock market this week was because of massive drops in the Chinese stock market (and secondary drops in the EU stock market). Compare the 1 month view of the Chinese market (http://www.bloomberg.com/quote/SHCOMP:IND http://www.bloomberg.com/quote/SHCOMP:IND) to Nasdaq (http://www.bloomberg.com/quote/CCMP:IND http://www.bloomberg.com/quote/CCMP:IND), and then recall that the Chinese market closes 7 hours before the US market opens.
- Bostonian 11y agoThere is no upward trend in 10-year Treasury yields, which are currently low at about 2.2% -- see http://finance.yahoo.com/q/hp?s=%5ETNX+Historical+Prices http://finance.yahoo.com/q/hp?s=%5ETNX+Historical+Prices .
- po 11y agoPeople seem to think this is a problem for the US (and I suppose it sort of is) but may not realize that it's not rosey for China either. The article ends by implying that they want to be doing this to get rid of much of their reserves, but I'm not sure it's that clear. The title here about China 'warning Washington' could be read either as a head's up or as a threat. The problem for China is that by selling treasuries for USD and then using that USD to buy yuan, they are effectively taking that money out of circulation. This keeps the yuan from dropping and maintains the currency peg but it also removes all of the liquidity in the market. This is not really a great situation. It also makes US manufacturing more competitive. In the past few days, they have been talking about playing with the reserve-requirement ratio of banks to encourage them to dump money into the market to maintain liquidity. If you tell banks that they can 'officially' lend out more by lowering the required amount of money they must have on hand, they will and then real money has been created. I feel like they're really just trying to keep the whole thing on the road.
- go1979 11y agoI am so confused ... don't the Chinese want a devalued Yuan? It helps their economy, right? Did they shift course in the past week???
- irln 11y agoI believe when they decided to devalue their currency it impacted their stock market and unfortunately all central banks are now beholden to their individual equity markets and therefore "had" to take action.
- po 11y agoYeah it's confusing... You're right that a devalued Yuan helps their exporters. Of course, too much is a bad thing too. They want to keep their currency within a narrow range relative to the USD. They were recently making a move to do that which sparked all of those 'currency war' headlines: http://www.wsj.com/articles/china-moves-to-devalue-the-yuan-1439258401 http://www.wsj.com/articles/china-moves-to-devalue-the-yuan-... They did that as a 'one-off thing' but it seems like everyone interpreted it to mean their economy was actually really in bad shape so investors started to get out before their assets dropped more. Then the stock market went to hell and now they're surprised that everyone is spooked: http://www.reuters.com/article/2015/08/27/us-china-yuan-idUSKCN0QW09I20150827 http://www.reuters.com/article/2015/08/27/us-china-yuan-idUS... So basically they sparked a bit of a panic and have been throwing levers to try to reassure everyone but each thing they try seems to just make it worse. At least that's what I'm seeing. :-)
- roymurdock 11y agoSummary & Speculation: China sells US treasuries in order to appreciate Yuan relative to USD. Supply of US treasuries on the market increases. Demand for US treasuries decreases due to concerns over a large enough Chinese sell-off. Demand for US treasuries increases due to uncertainty over the stock market. Net effect on demand is uncertain. Assuming worst-case scenario (for the US) in which supply of US treasuries increases and demand decreases: Yields on US treasuries increase as investors with less demand must be compensated for taking on a riskier and more plentiful asset. Yields rise, and the US government must now service a higher level of debt, pushing the deficit higher. US is forced to re balance spending, stifling growth and economic activity in order to keep debt in line. Bottom line: This probably won't have an effect on US economy as investors need somewhere to park their money that is not the stock market. Also, the scale at which China is selling off treasuries is assumed to be pretty small ($40bn/mo compared to $3.65tn total holdings). Now if China initiated a mass sell-off of all of its US treasuries, there would be huge ramifications. But in its current form, this seems to just be one more way for China to slowly unravel its position in US treasuries while playing with the value of the RMB.
- jasonlaramburu 11y agoHow do you draw the bottom line conclusion (no effect on US economy) from the scenario where U.S. growth and economic activity are stifled?
- space_fountain 11y agoHe's saying that could happen, but it's unlikely
- roymurdock 11y agoThe worst-case scenario (large drop in demand coupled with large increase in supply of US treasuries) would probably only be triggered if China dumped a lot of treasuries on the market at once. Say, for argument's sake, 50% of their holdings in one week. This would signal US treasury weakness and would flood the market with a ton of extra US treasuries. They are currently selling treasuries off at the rate of ~1% of their total holdings per month. So I assume that fear over an uncertain stock market + investors looking for a good opportunity to pick up cheap US treasuries will provide enough demand to soak up the new supply of treasuries that are trickling into the market.
- beauzero 11y agoThe big 1.6T question is who is buying them? Right now it looks like they are going to Belgium?
- adventured 11y agoThe Belgium buys are now famous for being a China proxy. It's not actually Belgium doing the buying. http://www.bloomberg.com/news/articles/2014-07-27/china-hides-treasury-buys-in-belgium-chart-of-the-day http://www.bloomberg.com/news/articles/2014-07-27/china-hide...
- coliveira 11y agoWhen it comes to currencies, supply has not such a powerful effect as people think. The value of a currency is determined more by the subjective ability of the government to support the currency, not by the amount of it in circulation. If supply had such importance, large countries like Russia, China, and India would have a great advantage over the USA, because their currencies are currently not in wide circulation. In theory, the US could continue printing money until everybody in the world would be using USD (now, if this would or should happen is another thing).
- JamesBarney 11y agoWhat happens to the dollar? For years people railed against China for keeping the yuan artificially lowered by buying U.S. Treasury Bonds. This led to Chinese manufacturing being extra competitive, and a larger U.S. trade deficit. Now China is doing the opposite. It is selling treasury bonds to buy yuan to artificially increase the price the yuan and everyone is freaking out. It will do the opposite of what is had been doing by causing the dollar to appreciate, and the yuan to depreciate. This will make foreign goods relatively more expensive for Americans, and American goods relatively cheaper for the foreigners. This effect will be most pronounced when the foreigners are Chinese. These will probably be small effects that won't effect anyone's life enough to be noticed. Whats happens to Treasuries? Nothing. Short term treasury rates are pretty much determined by the FED. Now even more so than usual because of the FED has it's pedal all the way down on the accelerator at 0% interest. Long term treasury rates tend to be determined what people think short terms rates will be over the long term. What primarily determines the interest rate over the long term is U.S. growth and inflation. So if people think this will cause more U.S. growth, long term treasury rates might increase a little.
- dataker 11y agoFor having an idea on numbers/countries, these are good references: http://www.treasury.gov/ticdata/Publish/mfh.txt http://www.treasury.gov/ticdata/Publish/mfh.txt http://www.treasury.gov/ticdata/Publish/mfhhis01.txt http://www.treasury.gov/ticdata/Publish/mfhhis01.txt
- mactitan 11y agoNote the title is opposite of what they recently did. Selling treasuries has large ramifications for the US. and a warning that we should think about getting our financial house in order (congress will not heed this, only the bond traders will force "austerity" as they did during the Carter administration) China's 2% devaluation of the renminbi a couple weeks ago was the trigger for the current market turmoil. Chinese financial tactics are probably aligned with the goal of inclusion into the IMF SDR: <IMF Executive Board Approves Extension of Current SDR Currency Basket Until September 30, 2016> http://www.imf.org/external/np/sec/pr/2015/pr15384.htm http://www.imf.org/external/np/sec/pr/2015/pr15384.htm (Was it retribution for not being immediately included? Maybe not, but they still are the major holder of US treasuries.) Then they wouldn't need as many dollars to buy their trade goods. Chinese rise is inevitable and we need to do serious things to prepare for living beyond our means.
- klean92 11y agoWill George Soros enter the fray and break the Bank of China? ;)
- foobarian 11y agoWatch out for Porsche proxy-buying all the freed up treasuries!
- deleted 11y ago[deleted]
- known 11y agoDollar is pegged to OPEC oil; Yuan is pegged to exports;