Friday, January 8, 2016

China burned $3.5 billion a day in December

China burned through $108 billion in December, according to China's central bank, as the country tried to stabilize the yuan as it depreciated against the dollar.
That works out at to about $3.5 billion per day.
That effort didn't stop the yuan from ending the year down 4.5% against the dollar. And it hasn't stopped the currency from continuing to decline in the first days of 2016. 
That said, it has allowed the currency to glide down more gently than it would if the government weren't propping it up by buying it.
The Chinese want the yuan to depreciate. Their economy is slowing and a weaker yuan means more competitive goods and jobs for Chinese workers.
On the other hand, because China's economy is slowing the government needs cash. That means it has to avoid capital flight as yuan-holders trade it in for a more stable currency.
It's an incredibly expensive task, one that analysts have said could leave China in a position where it's forced to bleed money until the yuan finds some sort of stable level against the dollar, or against a basket of alternative currencies.
But we don't know when China's slow down will stop, so we don't know how long it will take the yuan to find a fair value. We don't know how long China will have to bleed money.

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