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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: RetiredNow who wrote (129897)	2/6/2017 5:14:57 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 217588

China is in the early days for international bond market exposure. Building a sense of security in the bond market takes a long time to create - and only a few moments to extinguish. When you lend money in a different currency you always want to know you can readily convert that currency into another currency you prefer. Like many volatile emerging economies China has frequently resorted to currency controls, where your currency can't leave the country or be brought in. Frequent imposition of currency controls absolutely ends your possibility of selling bonds on the global market in your own currency. You're essentially saying our currency is no good for the next indeterminate period of time, so who wants your currency? You end up with secondary markets where your currency is convertible, but at a huge discount. It's not unlike saying US issued Green Cards and Visas are no good for the next 3 months or indeterminate period of time. This suddenly and unexpectedly interrupts anyone running a large business, and your confidence in the future of doing business in that country takes a big hit. As a consequence China can readily borrow in Yen, Dollars, Euros or Pounds the major convertible currencies - but not Yuan. Once a series of Chinese governments are absolute about the commitment to not using currency controls, then they'll be able to sell Yuan-debt internationally. But if I were a leader in China today, given the stage of development of their economy, I'd find the ability to implement currency controls far more useful than the ability to borrow in Yuan. At some point China will transition to preferring to borrow in Yuan more than they desire implementing currency controls periodically. The only problem nations get into with debt is borrowing in a currency other than their own. So until China no longer needs to use currency controls, it's best that their total borrowing remains small. The other factors in debt, ability and desire of the borrower to repay debt is a much smaller concern depending upon social stability, but a concern which has limited debt sold by Russia and other nations with cyclical economies. Wide swings in the value of a currency can matter too but can be readily hedged. But it kills the market for new debt if the hedge costs too much.