There is no doubt that China is facing substantial capital outflow. The fact that it refuses to honour its 'revised' fixing system for the currency should signal that the Yuan never belonged in the SDR basket to begin with. The IMF fudged the entry criteria to include the Yuan back in 2015, accepting a change to PBOC fixing that allowed them to declare it a market-determined rate, but since then, the IMF website has whitewashed the original debate about what determines a 'freely traded' currency. The truth is that CNY is an aggressively managed float that functions as a policy rate, not a market price set by supply & demand. It is not freely traded. The fix has not represented the actual USDCNY rate for over 3 months now. If you are an IMF recipient of a SDR distribution, you are receiving an artificially overvalued RMB component. This is why the criteria is there. SDR drawdowns should be convertible instantly at fair-market rates. Therefore, the story isn't about declining Treasury holdings. China has been selling UST holdings since Trump took office. Since the spike in global bond yields, the Chinese Authorities haven't behaved any differently than any other long duration bond manager. They are selling and restructuring their bond portfolios. The real story is the coming CNY devaluation. The market would be taking USDCNY much higher from here, if allowed, if transparent data on capital outflows existed, if PBOC didn't control the big-4 banks' ability to hold dollars, etc. There is only one way out of China's debt & deflation trap. The artificial fix and capital controls will hide the risk only until policymakers decide they are ready to engineer the actual devaluation. When will that be? Most likely, after all commodity import supply/price risks are hedged, and after the global economy slows down toward recession, further cutting export demand. #china #rmb #cny #pboc #ustreasuries #currency #usd #chinaeconomy #chinamarket https://lnkd.in/duwNs5FK