USD/CNY rose once again today, hitting 6.25 for the first time since Dec 2012.
The Chinese currency has weakened 3.3% this year. The initial move came after China announced a widening of the daily trading band in what was thought to be a liberalizing move. The sudden move in the opposite direction touted as a move to punish speculators but the longer it goes, the more unlikely that sounds.
Ambrose Evans-Pritchard looks at stealth Chinese FX reserve accumulation as the catalyst.
[The US Treasury] gave a strong hint that China is disguising its reserve accumulation. You don’t have to dig hard. Simon Derrick from BNY Mellon said a recent buying spree of US Treasuries and agency debt by Belgium of all places looks like a Chinese front.
Holdings by entities in Belgium have jumped to $341bn from $169bn last August. This would appear to explain how China’s FX reserves have kept rising to $3.95 trillion even as its custody holdings in the US itself have been falling.
The consequence could be deflation elsewhere.
