By April last year, it had become clear that conditions in China were heading into dangerous territory. Even though most mainstream attention was fixed on the then-still growing stock bubble, there was so much that was wrong almost everywhere else. The economy would not stop slowing, and indeed still has not. The financial system was worse, so much so that in the middle of last March the PBOC decided to just end CNY currency volatility.
Trading sideways for five months is about the most visible signal of distress and turmoil aside from open, crashing disorder; the re-pegging of the currency was just one step shy of that. That leaves two important unanswered questions and a further inquiry about which one of them is the most pressing: what is causing the imbalance such that the PBOC feels the need to so evidently suppress it?; what is the PBOC doing to actually stamp out volatility in CNY exchange, which is not exactly a minor factor?
By July 2015, with Chinese stocks now crashing, the first question was being answered leaving the second open to interpretation (with most ignoring it entirely). I wrote in late July:
The yuan has suddenly, right at the March FOMC meeting, gone limp. Trading has been confined, except for very brief, intraday outbursts, to an increasingly narrow range. Given its behavior particularly as a full part of the reform agenda to that point, this amounts to what can only be hidden and inorganic factors. Whether that means PBOC intervention is unclear, though suggested by even TIC, but this is the most important and unexplained dynamic in the “dollar” world at present.
Perhaps the June TIC updates will help shed some light on what has been going on with China’s “dollar short”, but I doubt it. The nature and especially the scale of what might be happening in the money markets has global implications, and may (conjecture on my part) start to explain the reversal in the Chinese stock bubble and ultimately even relate to the “dollar’s” renewed disruption in July so far. [emphasis added]
Those “inorganic” factors are not supposed to hidden as almost every other country on Earth reports to the IMF their “reserves” and related activities via a formal call sheet. China had until the November 2015 refrained from participating in the reporting, leaving only the headline “reserves” as its depth of information. The call sheets themselves are structured to give that impression, with those reserves placed prominently in Section 1 even though reserves are anything but in this eurodollar, credit-based system. The wholesale stuff, what is truly relevant, is all in Section 4’s Memo Items.
Starting with the month of June, the PBOC began to report what it calls the “International Reserves and Foreign Currency Liquidity Data Template Template on International Reserves and Foreign Currency Liquidity”, though it’s not clear what exactly the PBOC is reporting. Is this a “template” in the most literal sense, meaning that it is hypothetical, or is it what the PBOC would report if it disclosed what the IMF wants? Given the (lack of) information contained especially in Section 4, there is no doubt that it is the former and that a great deal remains missing.
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