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Comment by jhulla | Hacker News Reader

Sell Treasuries --> USD Cash

What is being done with the USD Cash generated after the sale? Are the Chinese immediately selling the USD Cash to local CNY holders in order to defend the peg? What do they do with it next? Is the new USD Cash leaving Chinese borders? Does it stay in local accounts - eventually to be used to buy up other USD denominated assets?

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as the article says, they try to keep the yuan up. so they sell treasuries and buy yuan with the usd from the sales. (what they then do with the yuan doesnt matter, its theirs anyway)

What is not clear is this:

1. Who is selling the CNY for USD? Specifically is it another arm of the government?

2. More importantly: what is the new holder USD allowed to do with their newly acquired USD cash pile? Are they allowed to transfer it out of the country? Or are they required to keep it in USD, but it in Chinese banks? Are their restrictions on what they can buy?

> Who is selling the CNY for USD?

i m guessing currency traders, who sees a good deal selling their CNY for USD for more than they purchased the CNY prior.

The CNY are coming from the open market, people who have yuan and want to have dollars. Since it's the open market, they can do whatever they want with those dollars after the trade. Thus, this is putting more dollars into circulation.

I assume China is making these trades in the foreign exchange market. (Which is like a stock market for trading currencies.)

https://en.wikipedia.org/wiki/Foreign_exchange_market

If so, anyone could be on the other side of the trade, including other governments, banks, speculators, investors, and businesses. The USD are transferred to the other party, out of China if appropriate.

Companies, individuals, investors e.t.c. are moving their money out of the yuan back into the dollar, China is selling some of its treasuries to get the dollars to give to these people. I expect the vast majority of it is leaving the country.

this.

Isn't that against their goal of making the Yuan part of the Special drawing rights? If there are fewer Yuan internationally (and more in-country) they have a worse case for that.

The bigger hurdle to the SDR is I believe it has to be a free floating currency, which the Yuan is not. Also, I mean, what are you going to do? If people want to get their money out and you're not going to completely forbid them from doing so then you have to pay up. If you want to maintain your peg and pay up you need dollars to do it, which you have in the form of treasuries.

My armchair hypothesis is that Chinese central planning allows them to off-set the burden of USD to large corporations(Sinopec,ICBC) and purchase cheap energy. With current crude prices they can easily purchase large enough volumes to increase the price and hold on to a valuable commodity.

America is for sale.

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