Hedge Fund manager Kyle Bass: Chinese Currency is collapsing


It is important to realize that the Chinese have only been in these capital markets in the last 15 years, and while they are smart, they have kind of circuit spinning plates, 20 plates spinning all at once; and if one plate fall, they all fall.

In this case, what’s happening in China is they have to have dollars to sell, to buy their own currency, to hold it up.

If they were to ever free flow their currency, I think it would drop 30-40%, and the reason being it, they claimed to be 15% of global GDP in dollar terms, but less than 1% in global transactions settled is in their own currency.

So they’ve propped their currency up. Everyone’s calling them a currency manipulator; they are trying to hold this whole thing together. If they were to let it go, and allow all the wealthy Chinese to get their money out, to buy more houses in Vancouver, in London and in the U.S., and send more their kids to schools in the U.S., you would see their currency collapse.

That’s why they’ve kept such a tight lid on it. But in the end, they have to have dollars to support it and they are running out of dollars

So what they did they just stop supporting it. They didn’t intentionally weaken it; they just stop supporting it at a certain level.

I think what’s more important really happening behind the scene, back a month ago, when we were negotiating with the Chinese, we had a 150-page document that they had said they were going to sign, and the night before they took 50 pages out of the agreement. Anything that was measurable and enforceable got taken out, and they said we would sign this agreement.

And they negotiated with us in that, that’s why the talks broke down. That’s when Lighthizer and Mnuchin were going to China to meet with them. What’s happened here, China said we need you to drop all tariffs on all our goods, we need you to stop, just allowing Huawei in the U.S., we need you to release the Huawei’s CFO, before we are going to engage in talks.

We say, that’s not going to happen. So the Chinese negotiators stood up and walked out of the room.

And somehow we are the ones that are negotiating in bad faith; we are the ones that, when the president tweeted something and it’s all his fault, while the Chinese are actually the ones negotiating in bad faith all along.

If the Chinese are running out of dollar, you have to remember, they need dollars to buy everything that they import. They are desperately short of energy; they are desperately short of basic materials; they are desperately short of food. And they have to pay dollars with them.

They can’t pay RMB, or manipulate money with it. They have to actually use real currency. And if they are running out of real currency, and if they are running a current account deficit, and a fiscal deficit, then what happens next is they start to lose control of their currency.

I think that’s what you are seeing now.

By Kyle Bass
Edited by staff


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