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Will China's foreign reserves growth trigger currency war?
China’s yuan recorded its biggest weekly gain since May. It rose to a record high on Friday powered in part by strong capital inflows.
But some say its appreciation may prove unsustainable because of concerns about the strength of China’s recovery.
Its economy rebounded in the third quarter, expanding by 7.8 percent, but it still isn’t clear whether the country can sustain the pace of growth.
China's stash of foreign exchange reserves saw their biggest quarterly increase since the second quarter of 2011. They jumped by USD 160 billion in the three months to the end of September.
John Hardy says: "The flows have been so heavy, that the Chinese central bank has stepped in to keep the rate from appreciating too quickly".
There have been ongoing discussions in the last few years that countries are purposefully debasing their own countries to improve competitiveness - a concern that has been given the moniker "currency wars".
About this, John says: "The Chinese currency has appreciated so much and a currency war is pretty much off the table from the US side. Ironically, it could be coming back from the other way - from China complaining about the Bank of Japan policy, or about the Fed policy.
"So I think there is a currency war risk longer term but actually coming back the other way".
Looking at the Yuan, John says it's "interesting to notice that the Yuan is getting to record levels against the dollar".He suggests investors looks out for that all important 6 level and says it will be interesting to "see if China is going to continue to allow this to happen".
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