Not Manipulation, Montagu’s Monkey

The Chinese have never subscribed to the modern wave of “transparency” which has swept over Western central banks. The People’s Bank of China, Big Mama, very much operates instead on the doctrine which preceded it. Basically, Montagu Norman’s way of doing things.

Never explain, never excuse.

This mantra has been applied to what it does outside of China as much as inside. Even when participating in the IMF’s data scheme for the first time in 2016, central bank authorities somehow left more off the template than they managed to fill in. Especially the important parts contained within Section IV. As I complained in March of that crucial year:

No swaps, options, swaptions or forwards, just $33.7 billion in almost perfectly balanced repo. It is possible that this is correct as the PBOC will often use its influence to get banks to undertake any direct interventions on its behalf, leaving individual bank balance sheets containing the appropriate balances. However, in this case given these conditions, that was not likely as even if Chinese banks were directed (meaning no alternative but to follow policy intentions even if reluctantly) to wholesale means of enforcing a CNY peg that still would have left a future leg (forward) leading back to the PBOC.

What the hell does that even mean, you ask? Never explain, never excuse. The central bank acts in overseas currency markets, we all know this. But how it acts, and by how much, go figure.

Unlike most other authorities the rest of the world, the PBOC doesn’t need to ask permission for the banks under its authority; that particular word taken literally and to its furthest extent under the Communist regime. If the China’s central bank wants something done, and doesn’t want to leave a trace of that thing being done, make the state-owned banks do the deed(s) and bury it on their books. Any paper trail stops cold.

In the case of 2015-16, that had meant trying to arrest CNY’s dizzying descent. Notably, the decline followed very clear stages (ticking clocks) indicating Chinese officials and their minions were still new to it; of course they were, this falling yuan menace had shown up just a few years before (January 2014) catching them and more so everyone in the West completely off-guard.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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