Great one. Nevertheless, there must be something I’m missing here: Huge demand for HKD (pegged to USD) doesn’t automatically translate into demand for CNY, even though Beijing has de facto control over HK authority. It would be nice if you could shed more light on this issue.
There won't be a huge demand for CNY. That is why in this suggested, potential scenario, Bejing will sell CNY or unload CNY into HKD and depreciate against HKD.
If Beijing wants to depreciate Yuan, maybe it can sell against USD (pegged by HKD) or simply lift the fx intervention in between since Yuan is kinda overvalued given the lackluster economic performance.
In this vein, is it correct to assume that there must be some way Beijing can take advantage of HKD by transforming its political influence over it into something Beijing desires and cannot get elsewhere, not only depreciation?
The suggestion here is merely that what could be the incentives or motivation for Beijing to reverse it's hard stance it took against cryptocurrency. There stands to be a reason if not reasons for the 180-degree change in that policy. CCP does not do things without calculated measures. And part of the potential side effect of the suggested scenario is that CNY will devalue against HKD, which is hard-pegged to the USD.
The topic of Beijing's ambition or motive for HKD is a bit out of scope. This topic is quite broad and deep. It will take several lengthy and in-depth discussion - not to mention with some geopolitical implications.
And also to add a bit of uncertainty to the matter, PBoC still does not have a "formal governor" as we speak. Pan Gongsheng is still waiting in the wing to be anointed as the Head of PBoC. It is just a matter of time before he gets the nod. Given his background as the head of State Administration of Foreign Exchange, lets see what kind of interesting ideas and executions he will have up his sleeves.
Wow. Love this hypothesis. Let it be true!!
Thank you for reading Matthew. It would definitely catapult cryptocurrency into the echelon of accredited assets.
Great one. Nevertheless, there must be something I’m missing here: Huge demand for HKD (pegged to USD) doesn’t automatically translate into demand for CNY, even though Beijing has de facto control over HK authority. It would be nice if you could shed more light on this issue.
Thank you for reading Orfeo.
There won't be a huge demand for CNY. That is why in this suggested, potential scenario, Bejing will sell CNY or unload CNY into HKD and depreciate against HKD.
If Beijing wants to depreciate Yuan, maybe it can sell against USD (pegged by HKD) or simply lift the fx intervention in between since Yuan is kinda overvalued given the lackluster economic performance.
In this vein, is it correct to assume that there must be some way Beijing can take advantage of HKD by transforming its political influence over it into something Beijing desires and cannot get elsewhere, not only depreciation?
Hi Orfeo.
Thank you for your reply.
The suggestion here is merely that what could be the incentives or motivation for Beijing to reverse it's hard stance it took against cryptocurrency. There stands to be a reason if not reasons for the 180-degree change in that policy. CCP does not do things without calculated measures. And part of the potential side effect of the suggested scenario is that CNY will devalue against HKD, which is hard-pegged to the USD.
The topic of Beijing's ambition or motive for HKD is a bit out of scope. This topic is quite broad and deep. It will take several lengthy and in-depth discussion - not to mention with some geopolitical implications.
And also to add a bit of uncertainty to the matter, PBoC still does not have a "formal governor" as we speak. Pan Gongsheng is still waiting in the wing to be anointed as the Head of PBoC. It is just a matter of time before he gets the nod. Given his background as the head of State Administration of Foreign Exchange, lets see what kind of interesting ideas and executions he will have up his sleeves.
Many thanks for answering and sharing your train of thought. 👍
Another fantastic article!
Thank you for reading Lexi!