The PBOC has to be pretty happy with itself. In just a month China’s c.bank has managed to: 1) generate proper 2-way traffic and volatility in USD/CNY and USD/CNH; 2) likely stem the hot money inflows that were making life difficult; 3) execute a doubling of the USD/CNY trading band; 4) force exporters and market players to think about proper hedging (just as the selective bond defaults does the same in local credit markets); 5) squeeze the exotic CNY-CNH carry trade and inflict some losses without the market getting out of hand; and 6) prompt regulators in S.Korea and Taiwan to start investigating and potentially crack down on these carry structured products. With that, the PBOC has a more flexible currency and a market fearing its next move. After the milder fix on Friday, the PBOC may set back and assess things from here. (Originally on Reuters Buzz March 21)
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