To start this week, Ma Jun, chief economist for the PBOC, gave an email interview where he expressed his belief that the yuan will be more volatile but in either direction. Many still took those comments as if it were a veiled prescription toward devaluation.

In the near term, it is more likely there will be “two way volatility,” or appreciation and depreciation of the yuan, Ma said in a question-and-answer statement sent by email.


The central bank would move only in “exceptional circumstances” to iron out “excessive volatility” in the exchange rate, Ma said.

If the central bank will only intervene under “exceptional circumstances” then the mainstream immediately turned that into “the PBOC is allowing devaluation because that is what it wants.” How any such thoughts could be considered consistent with what the PBOC has been doing until last week can only be misunderstanding the wholesale nature of global finance. Before last week, the PBOC had been intervening (who else could it have been?) so that the yuan wouldn’t move at all.

ABOOK Aug 2015 China CNY

This week has so far conformed to the wholesale interpretation. Just two days after Ma’s “exceptional circumstances” reference, the PBOC was “forced” to act once more, this time in one of its largest internal injections to, one more time, keep the yuan from depreciating sharply. Pay close attention to net results despite the conventional language:

China’s central bank poured the largest amount of cash into the financial system on a single day in almost 19 months, signaling Beijing’s growing concerns about capital flowing out of the country following the recent weakening of its currency.


Short-term interest rates and bond yields in the world’s second-largest economy have spiked in the past week, following an abrupt decision by the Chinese authorities to devalue the yuan last week. As money leaves the country, the amount of cash in the financial system declines, pushing rates higher.

How is that not a “dollar” run, especially since it predates the assumed “devaluation”? The fact that the PBOC continues to flush “dollars” only suggests that it is not over; not even close (the amount of reverse repos PBOC undertakes in yuan is related and proportional to any “dollar” activity). Thus, I think that is why Ma reinforced the idea that China’s economy is in recovery and that the worst had passed at least economically. As I mentioned last week, after holding the yuan steady for five months the PBOC is just hanging on for dear life, hoping that the recovery message takes root and ends the run because it is obviously unable to do so in any fashion of either direction.

ABOOK Aug 2015 China SHIBOR2

While some indications show that perhaps the most acute part of the turmoil has passed, dating to around last Wednesday, that isn’t nearly the same as its welcome end. Whether or not the PBOC’s measures have made a difference isn’t clear and is highly debatable, but what is more reasonable is that “dollar” pressure remains heavy if at least more scattered. We see copper, for example, selling to a new low today while crude oil bounces just if very slightly. The Brazilian real and Swiss franc have traded sideways since last week while the ruble continues toward the worst of the December crisis point.

ABOOK Aug 2015 China CopperABOOK Aug 2015 China BRLABOOK Aug 2015 China CHFABOOK Aug 2015 China RUB

If “dollar” pressure has waned it is only in its universality against everything. I think that leaves the net situation this week, as certainly the PBOC will attest in its most open moments, where the “dollar” is still a very big and ongoing disruption. That would seem to be the case even where the burden has seemingly diminished; crude, the real nor the franc are actively retracing in the other direction signaling relief, they have just, for the moment, stopped actively participating in the global rout that continues on.