Profit When China Removes Currency Cap

By www.ForexConspiracyReport.com
Profit When China Removes
Currency Cap

http://www.forexconspiracyreport.com/profit-when-china-removes-currency-
cap/
The Forex world was shocked when
the Swiss Central Bank removed the
currency cap on the Swiss franc
versus the Euro.

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According their central bank
the Swiss were forced by
circumstances to remove the currency
cap. Newsweek reports the news.

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The Swiss franc has risen dramatically
against the euro following the
unexpected removal of the long-
standing exchange-rate control by the
Swiss National Bank (SNB).

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The cap – which was introduced in
2011 – was designed to prevent the
Swiss currency from falling below 1.20
francs per euro in order to protect
Swiss exporters.

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The announcement on Thursday
immediately sent the currency market
into a flurry of panic, causing the
Swiss franc to soar by around 37% in
value against the euro at its peak.

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Whilst it has since leveled out, it still
remains at around 30% of pre-removal
value.

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It simply was going to be too
expensive to continue to buy Euros as
the EU institutes quantitative easing to
stimulate their economy and fight
inflation.

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Those who were betting on a weaker
franc at 20 fold leverage were wiped
out.

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Those who were in the opposite trade
made huge profits.

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The question we pose today is who
will profit when China removes its
currency cap!

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Is China Next?

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The practice of buying foreign
currency to suppress the value of your
own is a common monetary policy for
countries like Japan, Taiwan and
China.

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However, it becomes expensive over
time. MarketWatch wonders out loud
if China will be the next Forex peg to
break.

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The surprise move by Switzerland to
scrap its currency ceiling against the
euro EURCHF, -0.97% last week is a
reminder there can be unexpected
collateral damage from central banks
waging currency wars.

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As markets digest last week’s turmoil,
expect focus to turn to other fault lines
on the global currency map.

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Here China stands out, as like the
Swiss, it runs an implicit currency peg
that is becoming increasingly painful
to maintain.

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Due to its longstanding crawling peg
to the U.S. dollar, the yuan USDCNY, -
0.15% USDCNH, +0.00% has
increasingly found itself pulled higher
against just about every major
currency.

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The world’s largest exporter has
already had to endure two years of
aggressive yen USDJPY, +0.70%
devaluation since the introduction of
Abenomics and its accompanying
quantitative easing.

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To the extent that China has had a
thriving economy with double digit
economic growth the policy of
suppressing its currency is effective.

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Now that the Chinese economic
miracle is slowing down and deflation
is knocking at the door it may simply
become too expensive to keep buying
and losing in Forex trading.

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But, how can you profit when China
removes the currency cap?

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Will Yuan Currency Cap
Removal Be Another Swiss
Surprise?

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What China would like eventually is
for the yuan to be an international
currency.

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They would like to export and be paid
in yuan and they would like to use
their currency directly for foreign
investments and purchases.

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According to Reuters China is a fourth
of the way there.

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A quarter of China’s payments are
now in yuan.

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Nearly a quarter of all cross-border
payments in China last year were
settled in yuan, the central bank said
on Tuesday, underscoring the
renminbi’s growing dominance as it
heads into the league of major
currencies.

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A total of 9.95 trillion yuan ($1.6
trillion) worth of cross-border
payments were made in yuan last
year, the People’s Bank of China
(PBOC) said in a statement on its
website, as it vowed to increase
international usage of the currency
this year.

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For this policy to be totally successful
China needs to remove its currency
cap and let the yuan float normally
with other major currencies.

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But, when will this happen and how?
In all likelihood the decision, like that
of the Swiss will come as a surprise or
a series of small surprises.

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Those who trade in markets where the
yuan trades will be positioned to profit
when China removes its currency cap.

Profit When China Removes Currency Cap

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