5 ms·

I still can't wrap my head around this topic after reading the article. >> Yuan is not able to escape China, and therefore while other countries might see capi

I still can't wrap my head around this topic after reading the article. >> Yuan is not able to escape China, and therefore while other countries might see capital flee the country long before the point China has reached. China has been able to prevent a collapse of its currency. Why would Yuan escape China and why is it a bad thing for its currency?

joshuafkon 7y ago
China has strict capital controls to prevent money from leaving the country. If people believe that China is going to substantially devalue their currency, the will try to pull money out of the country and invest it elsewhere. The risk is that the currency would then devalue more than China wants - to the point that they have very high inflation https://chinaeconomicreview.com/for-china-the-risk-of-a-second-wave-of-capital-flight-is-now-severe/ https://chinaeconomicreview.com/for-china-the-risk-of-a-seco...
- bduerst 7y ago
  Chinese wealthy have been historically moving capital out of China regardless of the controls. It has been so prevalent that the newer housing development next to where I live doesn't have the number four in any of their street addresses. Wouldn't a weakened Yuan make them want to move the wealth back, to capitalize on the new arbitrage?
  - simonebrunozzi 7y ago
    What's with number 4? And, do you live in China or somewhere else where a lot of Chinese wealthy bought property?
    - brobinson 7y ago
      https://en.wikipedia.org/wiki/Tetraphobia https://en.wikipedia.org/wiki/Tetraphobia
    - qtplatypus 7y ago
      The word for 4 and the word for death sound the same.
onepointsixC 7y ago
Capital flight exists in China because of investor fears that the Yuan is worth significantly less than it's current rate of ~7 Yuan per dollar. Consider that the Chinese Yuan m2 currency supply figures are double that of the US Dollar. So the Chinese have printed twice as many Yuan in value as there are USD. One of those currencies is the global reserve currency used in nearly all FOREX trading. The other is only used in China. I'd say they probably have a point.
CharlesColeman 7y ago
> Why would Yuan escape China and why is it a bad thing for its currency? The full quote is: >> China has been able to maintain its system thus far, and may be able to maintain it longer than many expect, because unlike every other major economy, China has strict capital controls. Yuan is not able to escape China, and therefore while other countries might see capital flee the country long before the point China has reached. China has been able to prevent a collapse of its currency. I think what it's talking about is people (both domestic and foreign) deciding it's a bad currency to be invested in, and trading it for better currencies. The currency is being held so out-of-whack from where market forces would naturally keep it, that if people were allowed to do that, the PRC's economy could experience significant negative effects. I don't think they're saying the currency itself would escape, just the value it represents.
mywittyname 7y ago
> Why would Yuan escape China and why is it a bad thing for its currency? If yuan could leave China, people could buy 7.2 of them for a dollar, then turn around and sell only six of them to the Chinese gov't and get their dollar back. As you can see, this creates an unsustainable situation. Thus, the Chinese gov't must prevent capital flight if they want to prop up their currency value. Otherwise, arbitrage will eventually bankrupt them.

joshuafkon 7y ago

China has strict capital controls to prevent money from leaving the country. If people believe that China is going to substantially devalue their currency, the will try to pull money out of the country and invest it elsewhere. The risk is that the currency would then devalue more than China wants - to the point that they have very high inflation https://chinaeconomicreview.com/for-china-the-risk-of-a-second-wave-of-capital-flight-is-now-severe/ https://chinaeconomicreview.com/for-china-the-risk-of-a-seco...

bduerst 7y ago
Chinese wealthy have been historically moving capital out of China regardless of the controls. It has been so prevalent that the newer housing development next to where I live doesn't have the number four in any of their street addresses. Wouldn't a weakened Yuan make them want to move the wealth back, to capitalize on the new arbitrage?
- simonebrunozzi 7y ago
  What's with number 4? And, do you live in China or somewhere else where a lot of Chinese wealthy bought property?
  - brobinson 7y ago
    https://en.wikipedia.org/wiki/Tetraphobia https://en.wikipedia.org/wiki/Tetraphobia
  - qtplatypus 7y ago
    The word for 4 and the word for death sound the same.

onepointsixC 7y ago

Capital flight exists in China because of investor fears that the Yuan is worth significantly less than it's current rate of ~7 Yuan per dollar. Consider that the Chinese Yuan m2 currency supply figures are double that of the US Dollar. So the Chinese have printed twice as many Yuan in value as there are USD. One of those currencies is the global reserve currency used in nearly all FOREX trading. The other is only used in China. I'd say they probably have a point.

CharlesColeman 7y ago

> Why would Yuan escape China and why is it a bad thing for its currency? The full quote is: >> China has been able to maintain its system thus far, and may be able to maintain it longer than many expect, because unlike every other major economy, China has strict capital controls. Yuan is not able to escape China, and therefore while other countries might see capital flee the country long before the point China has reached. China has been able to prevent a collapse of its currency. I think what it's talking about is people (both domestic and foreign) deciding it's a bad currency to be invested in, and trading it for better currencies. The currency is being held so out-of-whack from where market forces would naturally keep it, that if people were allowed to do that, the PRC's economy could experience significant negative effects. I don't think they're saying the currency itself would escape, just the value it represents.

mywittyname 7y ago

> Why would Yuan escape China and why is it a bad thing for its currency? If yuan could leave China, people could buy 7.2 of them for a dollar, then turn around and sell only six of them to the Chinese gov't and get their dollar back. As you can see, this creates an unsustainable situation. Thus, the Chinese gov't must prevent capital flight if they want to prop up their currency value. Otherwise, arbitrage will eventually bankrupt them.