Yu Yongding: Devalue Now, Before Trump Takes Office
The endgame could come early in 2017:
Ultimately, trying to keep a lid on the Yuan is a game China will lose, and some are already preemptively admitting defeat. Among them is Yu Yongding, a former academic member of the PBOC’s monetary policy committee, who overnight urged his former PBOC colleagues to engage the “nuclear option” – a sharp, one off devaluation similar to what China did in August of 2015.
In emailed comments to Bloomberg, Yongding said that China has a window from now to President-elect Donald Trump’s inauguration to halt FX intervention and let yuan depreciate to its equilibrium level.
Yongding believes that once FX reserves fall below a certain psychological threshold, capital outflows will only accelerate, and while depreciation expectations may weaken occasionally, they will never disappear until the yuan free floats and finds its equilibrium.
He also warned that concerns over depreciation have severely affected the PBOC’s monetary-policy independence and said that while tightening capital controls is right move, this has massive side effects and can be evaded.