Friday, February 28, 2014

Why is the renminbi falling?

From the Financial Times:

“We’re still seeing PBoC intervention,” said a trader with a bank in Beijing. “This is beyond our expectations.” 
The central bank has been directing state-owned banks to buy dollars and has also been buying up more dollars itself.

Remember when the Central Bank of China buys dollars, it increases the demand for dollars, which raises the price of a dollar measured in renminbi's.

Equivalently, it also sells renminbi's, which increases the supply of renminbi's, and reduces the price of a renminbi measured in dollars.

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