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> I mean, to maintain this valuation, they have to constantly sell yuan and buy dollars, but they can't do that forever, right? In that direction, yes they can
by jpmattia 12y ago
> I mean, to maintain this valuation, they have to constantly sell yuan and buy dollars, but they can't do that forever, right?
In that direction, yes they can do it forever because they can keep printing yuan. The dynamics of the Soros' bet was in the other direction: The Bank of England needed to expend foreign reserves in order to buy pounds, and the supply of foreign reserves is finite.
The other interesting dynamic in yuan/dollar: China owns a sizeable amount of treasuries (since the US keeps running a trade deficit, they turn around and invest in interest-bearing bonds). The treasuries are denominated in dollars: If China decided to dump all the treasuries on the market at once (driving US interest rates through the roof, and the price of the T's down), the US gov't would just buy it's debt back for pennies on the dollar. There would no doubt be chaos, but it would be a very different dynamic than the BoE fiasco.
- contulluipeste 12y ago"The treasuries are denominated in dollars: If China decided to dump all the treasuries on the market at once (driving US interest rates through the roof, and the price of the T's down), the US gov't would just buy it's debt back for pennies on the dollar." Buy with what? With more printed dollars? When someone so large as China starts dumping cheap U.S. bonds (dollars) on the wild pulling down currency's value, it won't be the only acting player. Nobody wishes to loose value by holding to a rapidly depreciating currency, so expect a shopping spree all over the world. It all comes down to faith. Small players can't trigger such big events, but China could. It won't matter that U.S. debt problem gets solved if its currency looses monopoly.