SEE UPDATE AT THE BOTTOM
The above tweet from bond house PIMCO couldn’t be more wrong in terms of how Chinese purchases of foreign assets relate to the value of the Chinese yuan.
Here’s how it actually works in practice:
If China wants to weaken its currency — which it might want to do in order to make its exports more competitive — then it would print more yuan. These yuan could be used to buy dollars, which could then be used to buy U.S. Treasuries at auction. So buying Treasuries goes hand-in-hand with keeping a weak currency.
Conversely, if China wants to strengthen its currency — which it’s been doing to some extent for nearly a decade — then it could print fewer yuan, and theoretically purchase fewer Treasuries.
Either way, the basic gist is that accumulating foreign reserves is a way for China to weaken its currency. Selling foreign assets strengthens the currency, the exact opposite of what the above tweet says.
This is basic stuff, and the only question is whether whoever did that tweet mis-quoted Bill Gross, or whether Bill Gross actually said that (hopefully the former).
This random tweet coming on a Sunday afternoon won’t really matter much, but coming after the ouster of the economist El-Erian, leaving only Bill “Secretariat” Gross does not inspire confidence.
UPDATE: After getting called out on the above tweet, PIMCO has deleted it. But then a few minutes later, PIMCO tweeted almost the exact same thing.
Again, if China wants to weaken its yuan, it just needs to print more of them. Selling Treasury assets wouldn’t be part of the playbook at all. Oy.
UPDATE: And now PIMCO has deleted the second tweet.