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What I don't get is how this jives with debasing the Yuan. Won't selling Treasuries create demand for Yuan and drive up the Yuan price? Maybe They are selling T

What I don't get is how this jives with debasing the Yuan. Won't selling Treasuries create demand for Yuan and drive up the Yuan price? Maybe They are selling Treasuries for another currency?

exelius 11y ago
They are probably selling treasuries for dollars and adding them to their foreign currency holdings. Also, China can just print more Yuan if they want to debase it (they're a government; they can do that). Whether they keep the dollars as dollars is dependent on whether or not they think the dollar will rise in value relative to other currencies: it's just investment strategy at that point.
- spikels 11y ago
  It can't be that since their foreign reserves which include foreign currency holdings are declining. The recent turmoil started with an attempt to lower their currency but this quickly got out of hand when their stock market crashed so they had to start supporting their currency. To do this they sold foreign assets for foreign currency which they used to buy their own currency.
  - exelius 11y ago
    Right; OP was asking why they would be supporting their currency if they were trying to devalue it. And honestly, the "stock market crash" was just a correction. Yes, it declined by 50% over 2 months. But in the 9 months between September 2014 and June 2015 it had risen by over 250% - these most recent losses represent only about half of the total gains over the last year. China is a fast growing economy, and fast growing economies are volatile and prone to asset bubbles. Its economy is less reliant on its stock market than the US; hence the market can slide way, way further out of equilibrium than in the US because it's not as liquid and is only weakly tied to economic fundamentals.
lmm 11y ago
It will drive up the price of the Yuan - that's what the grandparent said. I don't know where you're getting debasing from? Separately the Chinese government recently allowed the Yuan to float more openly. That's had the effect of debasing it, but it wasn't a goal - the point is to allow it to float at a market price (partly to make it more viable as a reserve currency), but the government wants to prop up its value.
- runeks 11y ago
  I believe the mistake is to think one can design a reserve currency. The dollar is the world's first reserve currency only because the Bretton Woods monetary system defined it as redeemable for 1/35 ounce of gold after World War II. When the Fed defaulted on its gold obligations in 1971, the world got a reserve "currency" -- before the world reserve asset was gold. I don't think any government can create an irredeemable credit instrument and have it accepted as reserve currency. Even the dollar as reserve currency had to come in the back door.

What I don't get is how this jives with debasing the Yuan. Won't selling Treasuries create demand for Yuan and drive up the Yuan price? Maybe They are selling Treasuries for another currency?

exelius 11y ago

They are probably selling treasuries for dollars and adding them to their foreign currency holdings. Also, China can just print more Yuan if they want to debase it (they're a government; they can do that). Whether they keep the dollars as dollars is dependent on whether or not they think the dollar will rise in value relative to other currencies: it's just investment strategy at that point.

spikels 11y ago
It can't be that since their foreign reserves which include foreign currency holdings are declining. The recent turmoil started with an attempt to lower their currency but this quickly got out of hand when their stock market crashed so they had to start supporting their currency. To do this they sold foreign assets for foreign currency which they used to buy their own currency.
- exelius 11y ago
  Right; OP was asking why they would be supporting their currency if they were trying to devalue it. And honestly, the "stock market crash" was just a correction. Yes, it declined by 50% over 2 months. But in the 9 months between September 2014 and June 2015 it had risen by over 250% - these most recent losses represent only about half of the total gains over the last year. China is a fast growing economy, and fast growing economies are volatile and prone to asset bubbles. Its economy is less reliant on its stock market than the US; hence the market can slide way, way further out of equilibrium than in the US because it's not as liquid and is only weakly tied to economic fundamentals.

lmm 11y ago

It will drive up the price of the Yuan - that's what the grandparent said. I don't know where you're getting debasing from? Separately the Chinese government recently allowed the Yuan to float more openly. That's had the effect of debasing it, but it wasn't a goal - the point is to allow it to float at a market price (partly to make it more viable as a reserve currency), but the government wants to prop up its value.

runeks 11y ago
I believe the mistake is to think one can design a reserve currency. The dollar is the world's first reserve currency only because the Bretton Woods monetary system defined it as redeemable for 1/35 ounce of gold after World War II. When the Fed defaulted on its gold obligations in 1971, the world got a reserve "currency" -- before the world reserve asset was gold. I don't think any government can create an irredeemable credit instrument and have it accepted as reserve currency. Even the dollar as reserve currency had to come in the back door.