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The consensus seems to be that China's RMB devaluation and USD accumulation is purely due to economic necessity.

I don't know much about tradfi, but I have a sneaking suspicion that China might be devaluing the RMB to get it to parity with the HKD so they can flip the peg from USD to RMB.

They would probably need a heap of USD liquidity as a buffer, which would explain why they have suddenly started selling T bills etc and stockpiling USD.

I don't know anything and this isn't my field, but curious to know if this is within the realm of possibility.

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Discussion

Tico 🇨🇷 2y ago

Fiat is toxic everywhere in the world 🌎 ☢️

August 2y ago

More likely a defensive measure. Reduce exposure to the lunatic government. Hold the dollars in case China has to deal with the same SWIFT related problems Russia did. Perhaps they have a military project in mind that USG may not like.

I don't see them needing a lot of USD liquidity as a buffer just to flip the peg. They just need to be willing to have a lot of HKD holders be unhappy. But I also think this is probably way down on the priority list. Of course, I'm in America, listening to our crazy government doing and saying crazy things, so I'm more inclined to think priority number one is reduce exposure/reliance on these complete nuts.

No doubt the view is different in Hong Kong.