More Evidence of Chinese Devaluation: Zimbabwe Makes Yuan Legal

In one of China's latest moves to internationalize it's currency, Zimbabwe has made the yuan a legal currency for transactions. This has come on the heels of China forgiving Zimbabwe's $40 million in debts.  The yuan now joins the US Dollar and the South African Rand as currencies of choice for Zimbabweans to transact in.  Zimbabwe has had no currency of its own since its last bout with hyperinflation in 2009.

Chinese monetary policy is something that has been followed closely. Past posts can be found here, here and here.  This is important because it continues to show China's conviction in letting its currency float.  This is of course will lead to it continue to "de-pegging" its tight band with the USD.  All of these policy moves are starting to tilt toward evidence that the PBOC wants to accelerate the loosening of this band.  As the currency internationalizes, there will be more yuan offshore which could also lead the the spread between offshore yuan and onshore yuan to continue to widen.

As the the yuan continues to devalue and tight capital controls continue to be enforced, Chinese will continue to want to move money offshore and and as that spread continues to widen this is bullish for the price of bitcoin.  The chart below shows how expensive it has been to short the short-term yuan (1 year) vs a longer term (5 year) offshore yuan. The price moves due to continuing devaluation have been unprecedented in recent years under much tighter monetary policy.

This can also lead to a widening spread between on shore and off shore yuan, particularly if the loosening of the band continues to accelerate.

All signs are starting to point towards China accelerating its devaluation. This is a form of monetary easing as keeping the tight band has been very expensive for China especially with the continuing strength of the USD and economic slowing on the mainland.  Look for more money to continue moving offshore and for bitcoin to be a vehicle for that.