China: Tightening capital controls to stop speculation of weaker CNY – Rabobank

FXStreet (Delhi) – Michael Every, Head of Financial Markets Research at Rabobank, notes that China is tightening capital controls even further without publicly disclosing that fact in order to stop market speculation of a weaker CNY.

Key Quotes

“They’re sparing no effort to prevent capital outflows…All the measures are the most aggressive I’ve seen in recent history.

This is not the way to go about building up the reputation of CNY as an international reserve currency. I would also add that this is therefore also a critical moment: if these kinds of stricter measures don’t turn the tide of capital flowing out then China will only have two more options: full capital controls to stop money getting out (in which case many might think very hard about putting money back in again), or devaluing CNY/letting it float.

We’ve already seen what shock waves the latter can produce on just a small scale. One should also note that after all the precious FX reserves spent on narrowing the gap between CNY and CNH in January, it has opened up once again: CNH was at 6.6160 this morning while CNY was at 6.5780.”

Michael Every, Head of Financial Markets Research at Rabobank, notes that China is tightening capital controls even further without publicly disclosing that fact in order to stop market speculation of a weaker CNY.

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