Depending on whom one poses the question to, fiat currencies will either grow stronger or gain in value once again. For the Chinese Yuan, it appears that the first option will become true. J. Kyle Bass, the person who predicted the financial crisis in 2008, recently stated how the Yuan would lose another 30% of its value very soon. Given the recent capital controls and outflow plaguing the Country, this does not seem all that unlikely.
More Trouble Ahead For The Chinese Yuan
The year 2016 has not been particularly good for the Chinese Yuan, as the value has been dropping virtually all the time. Despite the PBOC trying to keep exchange rates in the positive, there is very little that they can do to stem the flow. Moreover, investors and consumers are starting to bypass any capital outflow limits, and they are getting rather crafty while doing so.
To make matters worse, J. Kyle Bass sees a very gloomy future for the Chinese Yuan moving forward. In his opinion, the Yuan value will drop another 30% in value in the coming year or so. That is not entirely surprising, as the PBOC has indicated that there will be further devaluations of the national currency. Then again, a 30% drop is quite spectacular.
Capital outflow is hurting the Chinese economy, but it is only understandable that consumers and investors want to hold onto assets that can either retain value or create an opportunity for profit. The Yuan is not providing that opportunity, as it seems that further losses are only a matter of time.
But what is puzzling to a lot of financial experts is how bad the capital outflows are. China will share numbers with the rest of the world, but no one knows if they represent the real problems, or are somewhat “polished”. It is very well possible that the strain on the economy is a lot worse than most people realize.
Despite all of these factors, a lot of questions are raised when thinking of a 30% value decline. It is not uncommon for fiat currencies to lose a few percent over the course of a year, but one-third is quite a lot of value. Such a severe drop will need to have a significant underlying cause, and cross-border movement of currency could be one of those determining factors.
More importantly, the victory of President-elect Donald Trump is rumored to impact most economies around the world in a negative manner. Whether or not that will be the case, remains to be seen. One thing’s for sure, gold prices are down, fiat currencies are losing value, and the price per Bitcoin is going up–all coincidental events, or is the tide slowly changing?
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