it is self evident is to you but it may not reflect reality.
can you offer any proof?
"We Understand The Chinese Government Has Halted Purchases Of US Treasuries": SGH
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can you offer any proof?
that is a response of a wife to a husband who says the soup is burning his tongue. she says do you want your soup cold. not a logical answer and neither is yours.
You are on a trading forum. What you are asking should be common knowledge.
You are asking me to prove that the sky is blue.
Are you familiar the fx market?
You are asking me to spend the time to give you an education on an elementary subject.
If you can answer how China pegs it currency to USD, I will waste the time and provide you proof. What does China mechanically do to peg its currency to USD? What transactions take place for the peg?
HINT: currencies are traded in pairs.
they don't have to sell. they can wait till maturity and not roll over. the US is the one with the trade deficit.
"Remember, the American dollar is the worlds reserve currency." what does that mean if the dollar continues to show weakness?
i
it is in your mind. your statements are meaningless without proof. there are many alternative scenarios including the Chinese recycling their dollars to buy hard assets around the world at an ever faster pace and not buying new treasuries as they mature.
The headline could read the following:
China decides to unpeg its currency to USD with completely unknown outcome.
That is exactly the same thing.
To stop buying treasuries is to unpeg the rememnbi to USD. It would become a floating currency.
If they stop buying treasuries, that is the same thing as surrendering to Trump in the trade war.
Just did google search. This economist does a decent job of explaining part of what I am talking about.
Micheal Pettis said, "If China runs a current account surplus, it must accumulate net foreign claims by exactly that amount, and the entity against which it accumulates those claims (adjusting for actions by other players within the balance of payments) ultimately must run the corresponding current account deficit. And as long as China ran the largest current account surplus ever recorded as a share of global GDP, and the US the largest current account deficit ever recorded, and especially since China also ran an additional capital account surplus (i.e. other non-PBoC agents ran a net capital inflow), it was almost impossible for the PBoC to do anything but buy US dollar assets. Given the sheer amounts, a substantial portion of these assets had inevitably to be USG bonds.
This was not a discretionary lending decision. It is the automatic consequence of China’s currency regime, in which it pegs the RMB to a foreign currency, in this case the dollar. Why? Because when the PBoC decides on the level of the RMB against the dollar, it does not do so by passing a law, and making it a capital crime for anyone to trade at a different price. What it does is far simpler. It offers to buy or sell unlimited amounts of RMB against the dollar at the desired price.
No one will sell dollars for less than what they can get from the PBoC, nor will anyone buy dollars for more than what they can pay the PBoC, so all transactions get done at that price. That is how the PBoC (or any other central bank that intervenes in the currency market) sets the foreign exchange value of its own currency.
This means that as long as it wants to set the exchange rate, then, it must take the opposite position of the market. Since the rest of the market is a net seller of dollars (China runs a current and capital account surplus), the PBoC has no choice but to be a net buyer of dollars, which of course it must then invest."
Just like the Fed, China engages in open market operations to try and acheive its desired outcome.
In other words, China creates an artificial collar on its currency through open market operations by buying and selling US assets, primarily US Ts. Thereby, controlling its cost of goods through FX. That is China's primary weapon in the trade war, the currency peg. Therefore, to maintain its peg, it has to acquire Ts. To stop acquiring Ts, is to unwind the collar.
Ts are really nothing more than US currency with a different duration and yield than USDs. Obviously, there is not an open market to echange Ts for goods and services.
In other words, China creates an artificial collar on its currency through open market operations by buying and selling US assets, primarily US Ts. Thereby, controlling its cost of goods through FX. That is China's primary weapon in the trade war, the currency peg. Therefore, to maintain its peg, it has to acquire Ts. To stop acquiring Ts, is to unwind the collar.
Ts are really nothing more than US currency with a different duration and yield than USDs. Obviously, there is not an open market to echange Ts for goods and services.
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I don't get it.
What does the above have anything to do with any of my other statements?