Daily commentary: the Fragile State of China’s FX Reserves redux

I highly recommend the FT article on China's 1% in the links below. They bring up the capital flight problem that a Chinese hard landing might mean. I noted last April that Victor Shih gave a talk at INET on the Fragile State of China’s FX Reserves. His thesis was that capital flight would be an issue in the event of a hard landing. What's more is that Marshall Auerback noted that "If you had huge capital flight as Shih suggests, the implication is that the yuan gets much weaker, as presumably these yuan are exchanged for other assets or currencies." We are seeing that. I also mentioned the commodities speculative trade unwinding. We are seeing that too.

As I said last year, just because we are thinking about this doesn’t mean we have it all figured out. There are still a lot ...


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