My Mother Finally Understood Why I am in China, Currency Fluctuations

I was talking to my mother today, who has always been disappointed with my decision to move to emerging markets right after graduation (because I could make much more money making coffee in an American firm than being a business reporter in the Czech Republic/China… I don’t even think I’m being sarcastic). But she finally came to terms with my decision by figuring out the relative value of money.

“So wait… because the Yuan is growing in value, that means your loans are getting smaller!”

This was followed by…

“but wait, since I’m in America…”

While my student loans are valued in the bazillions of dollars, and my pay in the “quite a bit less than bazillions” of RMB the 5-7 percent expected annual appreciation of the RMB (as long as the gov doesn’t go through with a one off) means next to nothing for me, but my mother realized that when I told her “give all your money to me and you’ll be making 10% on it a year,” I actually meant it, and wasn’t just trying to get her to give all her money to me. I reaffirmed this position by mentioning to her that the American economy is probably going to be pretty ugly for the next year.

Of course if Zhou Xiaochuan, the oh so dashing Governor of the PBOC, heard what I told my mother he’d probably punch me. The PBOC is trying to mop up USD 30-40 billion in foreign currency inflows every month with an additional USD 50 billion-60 billion or so in central bank notes. With interest rates in the US going south and interest rates in China going north the money can only get hotter.

The solution is now, and has always been, currency controls. If the government doesn’t let people take money out of the country, there is little chance of a fantastic crash, right?! Well, while this might decently inconvenience your average finanicial journalist with loans to pay off in the United States, it is a definite inconvenience for people and institutions who actually want to make a profit off of RMB appreciation. Still, profit is profit, and there are reports about black market currency exchanges (like a film noir!), and people crossing over into Hong Kong with their briefcases comically stuffed with money. The situation is bad enough that according to Li Kai, the Vice-President of the National Development and Reform Commission, outflows after the RMB stops appreciating is the single biggest concern of the commission.

My mother of course does not want her money only removable in small chunks, especially since she doesn’t live in China and would find it difficult to get it all back over the border in several goes. If we figure out a way around it I’ll post it here, and then we’ll know Zhou Xiaochuan is in trouble.

Bradley Gardner