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The Chinese currency affair

Janet Yellen arrived in China on July 7th, about 2 weeks ago. At that time, due to an abrupt weakness in the Yuan, the 2 main executives of the #pboc were removed and Pan Gongsheng was appointed as the new head of the central bank. Importantly, he also kept his old job as responsible for all the country’s currency reserves. It’s not clear what was discussed or agreed during Yellen visit, but looking at the chart below, the Chinese got what they wanted, and the US dollar weakened abruptly to stop the weakening of the Yuan. Now that the currency is stabilized, China can go back to the real priority which is to stimulate the economy to decrease youth unemployment and support the real estate sector. And perhaps because of that stimulus, the fed can continue with its hawkish strategy to control inflation without draining too much liquidity from the system. As the old saying goes: “have your friends close, and your enemies closer”.

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