An Alternative to China Currency Management

One obvious fall out from the burgeoning global trade war has been the weakening of China's currency. On April 11, it took 6.27 renminbi to buy one U.S. dollar. Now it takes 6.76, a 8% decline in the currency's value. I've written previously that China's currency management could be its secret weapon in battling back against U.S. tariffs. In that column I argued that this would make China a source of demand for U.S. bonds, as managing their currency value down required selling renminbi and buying dollars. I still think this is the right base case, but there is an alternative case that's worth discussing: one where the natural downward pressure on the renminbi is so strong that China needs to defend it from falling too far. This could have the opposite effect of what I described in my earlier column, i.e., China would have to sell Treasury bonds to prop up the renminbi against enormous downward pressure. This kind of thing has sunk many an economy in the past (including the U.K. in George Soros' legendary 1992 "Black Wednesday" trade), so it is definitely a scenario worth discussing.

Currency devaluations can become self-fulfilling...812 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

Read the full story and get access to the Real Money Pro trading floor.

There’s no substitute for a trading floor to get great ideas, so Jim Cramer created a better one at Real Money and blogs there exclusively. We then added legendary hedge fund manager, Doug Kass, with his exclusive Daily Diary and best investing ideas. Staffed with more than 4 dozen investing pros, money managers, journalists and analysts, Real Money Pro gives you a flood of opinions, analysis and actionable trading advice found nowhere else, and allows you to interact directly with each expert.

Already a Subscriber? Please login.

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.