Chinese Currency Collapses To 18-Month Lows; Nears PBOC Limits

In China, even the Shadow Banking system is now under real stress once they try to adjust Yuan Foreign Exchange values.

The report below is a typical explanation of the Main Stream Media's theory of method used to fix the current value of the Chinese Yuan. It has not been fixed to the Chinese economy for many months.

The Peoples Bank of China (PBOC)/Treasury has been tracking the Intercontinental Exchange/NY Board › US DOLLAR INDEX (NYBOT:DX), for the past few months, for its fixing the value of the Yuan until April 25, 2014 when the USD:CNY ratio was spontaneously raised from the previous average of approx. 1:6.220 to 1:6.2538. Currently, the Yuan has again been raised slightly in value to over 6.25894 per USA Dollar/Yuan, which is causing the illegal Chinese "Shadow Bank's" carry traders to be now very nervous. Yen carry traders must now unwind their trades and are experiencing terrific pain. We should also see an increase in the Shadow Bank's defaults, which should have no negative effects upon the regulated banking system or the overall Chinese economy.

Zero Hedge
By Tyler Durden
30 April 2014

After widening its tolerance for real world volatility mid-March, the PBOC has faced a daily battering of USD buyers and CNY sellers which have driven the Chinese currency to its weakest level in over 18 months. However, things are starting to become problematic... while call buying and hedging is exploding - as carry traders and local specs rush to cover exposures, Bloomberg notes that Morgan Stanley fears as the yuan approaches the lower end of PBOC’s permissible daily trading range, anticipated intervention to defend band could put other currencies under selling pressure. The last time - Summer 2012 - that the PBOC defended its currency, EUR came under selling pressure but as Morgan Stanley notes, “In the very unlikely case” of PBOC not defending band, FX volatility would surge globally with implications going beyond RMB as markets would assume China’s economic problems might be significant... whocouldanode?

The Yuan is now trading 1.8% below (above on the chart) its fixing and near the 2% band limit the PBOC expanded to in March...

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