A piece in the Australian Financial Review this morning:
- In June a group of foreign fund managers in Beijing ... asked the People’s Bank of China if it was planning to devalue the yuan
- "They were very explicit in saying there would be no devaluation" says one person present at the meeting. "If we did that it would set off a global deflationary spiral," a PBOC official told the group.
The article says there may have been a misunderstanding, that the intentions of the PBOC were misunderstood:
- While explicitly ruling out plans to devalue the yuan, the PBOC officials did acknowledge there was a problem in how the currency was set at the "daily fix"
- "They were fixated on the fix," says the fund manager. The issue was that the "fix" had been consistently out of kilter with where the currency was trading on the markets
- According to the fund manager, the PBOC were keen to see this gap narrow and for it to better reflect how the market was valuing the currency
Yeah, right ...
Who are these highly paid fund managers? Highly paid arse-coverers more like.
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OK, here are 2 reasons why you can't trust assurances from the PBOC.
1. (This is the silly one) Maybe Thomas Jordan is now working at the PBOC.
OK, I said that's the silly one. But, think about it ... It was only a few months ago that a well respected central bank in Europe flipped policy with no warning, creating chaos in the FX market that reverberates still. Central bank credibility! Puhleeese!!!!!!!!! And, people who believe central bank assurances - c'mon chaps, wake up and smell the coffee. Read a bit of history; here Google this: George Soros Bank of England.
Hope that helps.
The only people to blame for taking the PBOC's word were the dudes (I'm assuming they were dudes) asking the stupid f***'in question.
2. OK, secondly ... The PBOC is not an independent central bank as we commonly understand it. The PBOC has a huge say in policy in China, but at the end of the day they are a government department and while they will fight and defend their policy choices they are subject to the political process and will, at the end of the day, do what they are told by the administration.
Look, if there are any highly paid arse-coverers fund managers reading this, here's how you ask questions like this at the PBOC.
Its sorta like when you get the wrong burger at McDonalds. You ask to see a manager, K? You don't ask the guy at the drive-through window.
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