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February 8

China's current account surplus and depreciating currency

According to this article China's current account surplus was about 2% in 2016. However the capital/financial account component was in deficit and this has led to depreciation or pressure to depreciate on the currency.

But why would there be depreciation or pressure to depreciate when there is still a healthy current account surplus due to a high trade surplus component?

If the capital/financial account deficit remained the same but the trade surplus grew even more (e.g. price of imported oil drops) then would that make the Chinese currency appreciate?

Muzzleflash (talk) 20:45, 8 February 2017 (UTC)[reply]

It's complicated, but here's a shot at it. If the central bank is not intervening at all in the foreign exchange market, the exchange rate will adjust continuously so that the current account surplus will always equal the capital account deficit. Then if there is, as you say, a decrease in imports and hence an increase in the trade surplus, there will be a decrease in the demand for foreign currency to pay for the decreased imports. This will lead to the strengthening of the home currency, pushing its value up. This will cause capital flows to adjust to instantaneously re-equilibrate the capital account deficit with the current account surplus.

With central bank intervention, as long as it only partially offsets what is happening, the situation is more complicated but similar. Loraof (talk) 21:58, 8 February 2017 (UTC)[reply]

I agree that the article you linked, with its combination of a current account surplus much larger than the capital account deficit and yet declining foreign exchange reserves, is puzzling. Loraof (talk) 22:06, 8 February 2017 (UTC)[reply]

Thanks for the answer. "current account surplus will always equal the capital account deficit" this is a hard concept for me to figure out. Muzzleflash (talk) 08:53, 9 February 2017 (UTC)[reply]

By definition, the Balance of Payments of any economy is zero. The definition requires the current-account balance to offset the capital account balance, plus some minor items that never play much of a role. So, because China has a current account surplus it must have a capital account deficit, just as the US’ current account deficit offsets its capital account surplus. Confusion often arises from lazy journalists writing about a "Balance of Payments deficit / surplus."

While the issue of currency valuation is frequently closely tied to external balances, financial markets are now so large as to generally decide the direction a currency moves, unless it is regulated by the government. China regulates its currency, but financial markets are large enough to nudge it. When they do so, and the direction is not in the People’s Bank of China’s preferred direction, it will intervene. In recent years, the markets have pushed for a weaker Rmb:US$ exchange rate, and the PBoC has stepped in to maintain an acceptable level of Rmb strength.DOR (HK) (talk) 17:34, 10 February 2017 (UTC)[reply]

Where is a good place to ask a question about a non-harmful but odd user behaviour?

... Or maybe there is no such place and I should not bother? The story is, I can see an IP user doing something which appears weird to me but does no harm. I'd like to ask other editors "what do you think of this?" But AIV is clearly not appropriate as I am making no accusation of V; Or ANI?? I wondered but it's usually a bit more dramatic, isn't it? Do you think a part of the Village Pump is a sensible place to ask ... I do not want to sound like I am accusing an innocent user of doing something wrong, and I don't want to kick off a stroppy discussion in some high-profile venue. Or, as the encyclopaedia is not being harmed, maybe I should just stfu as The Young People so charmingly put it. What do you think? Cheers DBaK (talk) 21:54, 8 February 2017 (UTC)[reply]

If it's who I think you're talking about, those are test edits, and they are not supposed to be made on articles. The solution would be to give him one of our nice templated test-edit warnings, which also direct him to the sandbox, and report him to AIV if he continues. Someguy1221 (talk) 22:09, 8 February 2017 (UTC)[reply]

Thank you. It seems to have stopped now, so maybe I will just try to keep a friendly eye on it. Best wishes DBaK (talk) 22:17, 8 February 2017 (UTC)[reply]