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The Tiger Awakens: China Warns of "Retaliatory Action" and "Unforeseeable Consequences" Over U.S. Monday Deadline

The Tiger Awakens: China Warns of “Retaliatory Action” and “Unforeseeable Consequences” Over U.S. Monday Deadline.

Mac Slavo
March 14th, 2014
SHTFplan.com
 tiger

Yesterday Secretary of State and flip-flopper extraordinaire John Kerry advised Russia that Vladimir Putin has until Monday to pull back his forces from Ukraine. Failure to do so would lead to serious repercussions. Kerry was light on details, but we can assume he was talking about some sort of economic sanctions:

Sen. Lindsey Graham, a South Carolina Republican and a top critic of President Obama’s foreign policy, asked what the administration would do if Russian forces advance farther into the eastern area of Ukraine, and the new government in Kiev asks the U.S. for weapons to fight the Russians.

Kerry responded carefully, saying “we have contingencies – we are talking through various options that may or may not be available.”

“Our hope is not to create hysteria or excessive concern about that at this point in time,” he said. “Our hope is to avoid that, but there’s no telling that we can.”

It’s quite obvious, based on Kerry’s statement, that the Obama Administration really has no idea what to do, as they are still talking through “various options,” something that probably should have been worked out well before President Obama began slinging rhetoric over the crisis.

What the Obama administration assumes will happen is that they’ll force Russia into compliance by coming after their economy. Obama will hit the Late Night TV circuit to tout his success, we’ll all laugh about it, and then go on our merry way. Putin will be left embarrassed and laying in the fetal position sucking his thumb. At least that’s the plan.

But two can play at that game and China, which has stood by Russia’s show of force in Europe since the get-go, has now upped the ante.

It’s a brilliant move designed, once again, to show the world that President Obama and the United States are no longer running the show.

Sanctions could lead to retaliatory action, and that would trigger a spiral with unforeseeable consequences,” warns China’s envoy to Germany adding that “we don’t see any point in sanctions.” On the heels of Merkel’s warning that Russia risked “massive” political and economic damage if it did not change course, Reuters reports ambassador Shi Mingde urged patience saying “the door is still open” for diplomacy (though we suspect it is not) ahead of this weekend’s referendum. Russia’s Deputy Economy Minister Alexei Likhachev responded by promising “symmetrical” sanctions by Moscow. So now we have China joining the fray more aggressively.

Via Reuters,

China’s top envoy to Germany has warned the West against punishing Russia with sanctions for its intervention in Ukraine, saying such measures could lead to a dangerous chain reaction that would be difficult to control. In an interview with Reuters days before the European Union is threatening to impose its first sanctions on Russia since the Cold War, ambassador Shi Mingde issued the strongest warning against such measures by any top Chinese official to date.

“We don’t see any point in sanctions,” Shi said. “Sanctions could lead to retaliatory action, and that would trigger a spiral with unforeseeable consequences. We don’t want this.”

Using her [Merkel’s] toughest rhetoric since the crisis began, she warned in a speech in parliament on Thursday that Russia risked “massive” political and economic damage if it did not change course in the coming days.

Russia’s Deputy Economy Minister Alexei Likhachev responded by promising “symmetrical” sanctions by Moscow. But Shi urged patience, saying the door for talks should remain open even after a referendum on Sunday in which Ukraine’s southern region of Crimea could vote to secede and join Russia. Merkel and other western leaders have denounced the referendum as illegal and demanded that it be canceled.

“We still see a chance to avoid an escalation. The door to talks is still open. We should use this possibility, also after the referendum,” Shi said.

Zero Hedge via The Daily Sheeple

The White House’s deadline for Russia to pull back is Monday.

Will Obama blink again, as he did in Syria?

Let’s remember that China holds trillions of dollars of US debt. All they have to do is hint (not even actually do it) that they will pull back on Treasury purchases and we’re toast within days.

We shouldn’t be at all surprised if, on Monday, Vladimir Putin thumbs his nose at the west again and actually sends his troops across the Crimean border into Ukraine.

One thing’s for sure. President Obama’s foreign policy has been a complete and utter disaster on every front. Either this destruction of America’s worldwide credibility is pre-planned or there is a gaggle of idiots in charge at 1600 Pennsylvania Avenue. Perhaps both.

The Tiger Awakens: China Warns of “Retaliatory Action” and “Unforeseeable Consequences” Over U.S. Monday Deadline

The Tiger Awakens: China Warns of “Retaliatory Action” and “Unforeseeable Consequences” Over U.S. Monday Deadline.

Mac Slavo
March 14th, 2014
SHTFplan.com
 tiger

Yesterday Secretary of State and flip-flopper extraordinaire John Kerry advised Russia that Vladimir Putin has until Monday to pull back his forces from Ukraine. Failure to do so would lead to serious repercussions. Kerry was light on details, but we can assume he was talking about some sort of economic sanctions:

Sen. Lindsey Graham, a South Carolina Republican and a top critic of President Obama’s foreign policy, asked what the administration would do if Russian forces advance farther into the eastern area of Ukraine, and the new government in Kiev asks the U.S. for weapons to fight the Russians.

Kerry responded carefully, saying “we have contingencies – we are talking through various options that may or may not be available.”

“Our hope is not to create hysteria or excessive concern about that at this point in time,” he said. “Our hope is to avoid that, but there’s no telling that we can.”

It’s quite obvious, based on Kerry’s statement, that the Obama Administration really has no idea what to do, as they are still talking through “various options,” something that probably should have been worked out well before President Obama began slinging rhetoric over the crisis.

What the Obama administration assumes will happen is that they’ll force Russia into compliance by coming after their economy. Obama will hit the Late Night TV circuit to tout his success, we’ll all laugh about it, and then go on our merry way. Putin will be left embarrassed and laying in the fetal position sucking his thumb. At least that’s the plan.

But two can play at that game and China, which has stood by Russia’s show of force in Europe since the get-go, has now upped the ante.

It’s a brilliant move designed, once again, to show the world that President Obama and the United States are no longer running the show.

Sanctions could lead to retaliatory action, and that would trigger a spiral with unforeseeable consequences,” warns China’s envoy to Germany adding that “we don’t see any point in sanctions.” On the heels of Merkel’s warning that Russia risked “massive” political and economic damage if it did not change course, Reuters reports ambassador Shi Mingde urged patience saying “the door is still open” for diplomacy (though we suspect it is not) ahead of this weekend’s referendum. Russia’s Deputy Economy Minister Alexei Likhachev responded by promising “symmetrical” sanctions by Moscow. So now we have China joining the fray more aggressively.

Via Reuters,

China’s top envoy to Germany has warned the West against punishing Russia with sanctions for its intervention in Ukraine, saying such measures could lead to a dangerous chain reaction that would be difficult to control. In an interview with Reuters days before the European Union is threatening to impose its first sanctions on Russia since the Cold War, ambassador Shi Mingde issued the strongest warning against such measures by any top Chinese official to date.

“We don’t see any point in sanctions,” Shi said. “Sanctions could lead to retaliatory action, and that would trigger a spiral with unforeseeable consequences. We don’t want this.”

Using her [Merkel’s] toughest rhetoric since the crisis began, she warned in a speech in parliament on Thursday that Russia risked “massive” political and economic damage if it did not change course in the coming days.

Russia’s Deputy Economy Minister Alexei Likhachev responded by promising “symmetrical” sanctions by Moscow. But Shi urged patience, saying the door for talks should remain open even after a referendum on Sunday in which Ukraine’s southern region of Crimea could vote to secede and join Russia. Merkel and other western leaders have denounced the referendum as illegal and demanded that it be canceled.

“We still see a chance to avoid an escalation. The door to talks is still open. We should use this possibility, also after the referendum,” Shi said.

Zero Hedge via The Daily Sheeple

The White House’s deadline for Russia to pull back is Monday.

Will Obama blink again, as he did in Syria?

Let’s remember that China holds trillions of dollars of US debt. All they have to do is hint (not even actually do it) that they will pull back on Treasury purchases and we’re toast within days.

We shouldn’t be at all surprised if, on Monday, Vladimir Putin thumbs his nose at the west again and actually sends his troops across the Crimean border into Ukraine.

One thing’s for sure. President Obama’s foreign policy has been a complete and utter disaster on every front. Either this destruction of America’s worldwide credibility is pre-planned or there is a gaggle of idiots in charge at 1600 Pennsylvania Avenue. Perhaps both.

Here's What The Richest Man In The World Thinks About Snowden And NSA Surveillance | Zero Hedge

Here’s What The Richest Man In The World Thinks About Snowden And NSA Surveillance | Zero Hedge.

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

So Bill Gates recently gave an interview to Rolling Stone magazine. The vast majority of the interview focused on his philanthropic efforts, with a particular focus on poverty and climate change. However, several questions were brought up on illegal NSA surveillance in general, and Edward Snowden in particular.

His answers reveal one of the biggest problems facing America today, which is the fact that the billionaire class as a whole does not question or rock the boat whatsoever. They criticize only when it is convenient or easy to do so, never putting themselves at risk for the sake of civil liberties and the Constitution.

In mosts cases, this is due to the fact that they themselves are the characters pulling the strings of the political class in Washington D.C. So when it comes down to it, their policies ultimately become our policies.

It is also important to note that Microsoft was a particularly eager participant in NSA spying from the very beginning. For example, according to the following PRISM slide provided by Edward Snowden, we see that Gates’ company was the first to become involved. In fact, they were participating a full six months before Yahoo!, while Apple didn’t join until a year after Steve Jobs died.

What a tangled web we have weaved. Now from Rolling Stone:

Question: When people think about the cloud, it’s not only the accessibility of information and their documents that comes to mind, but also their privacy – or lack of it.

Gates: Should there be cameras everywhere in outdoor streets? My personal view is having cameras in inner cities is a very good thing. In the case of London, petty crime has gone down. They catch terrorists because of it. And if something really bad happens, most of the time you can figure out who did it. There’s a general view there that it’s not used to invade privacy in some way. Yet in an American city, in order to take advantage of that in the same way, you have to trust what this information is going to be used for.

Do they really catch terrorists because of it in London? Because in the U.S., the NSA chief already admitted that the entire spy program has stopped essentially zero terrorist attacks. It certainly didn’t stop the Boston bombings. So what are we giving up our privacy for exactly?

Question: Thanks to Edward Snowden, who has leaked tens of thousands of NSA documents, we are. Do you consider him a hero or a traitor?

Gates: I think he broke the law, so I certainly wouldn’t characterize him as a hero. If he wanted to raise the issues and stay in the country and engage in civil disobedience or something of that kind, or if he had been careful in terms of what he had released, then it would fit more of the model of “OK, I’m really trying to improve things.” You won’t find much admiration from me.

Sorry Billy boy, but we have had many whistleblowers in the past who went through the system and they ended up in jail or their lives were ruined. For example, the only person imprisoned for torture in the USA is the guy who exposed the torture program, John Kiriakou.

Question: Even so, do you think it’s better now that we know what we know about government surveillance?

Gates: The government has such ability to do these things. There has to be a debate. But the specific techniques they use become unavailable if they’re discussed in detail. So the debate needs to be about the general notion of under what circumstances should they be allowed to do things.

First of all, without the Snowden revelations, there would be no “debate.” As it stands, the intelligence complex and Obama don’t seem to have much interest in changing a single thing anyway.

Before Snowden proved us right, those who accurately claimed the NSA was doing all of these things were labeled paranoid conspiracy theorists. Moreover, how can anyone seriously defend these “techniques” in light of the recent revelations that show activities so egregious that security experts think they threaten the infrastructure of the entire internet?

Gates goes on to ponder…

Should surveillance be usable for petty crimes like jaywalking or minor drug possession? Or is there a higher threshold for certain information?Those aren’t easy questions.

How are those not easy questions? They are exceedingly easy questions for a civilized society. The answer is no. Unless you want to toss even more citizens in jail for non-violent offenses, because having 25% of the world’s prison population and only 5% of its population is not inhumane enough.

More from Gates…

The U.S. government in general is one of the better governments in the world. It’s the best in many, many respects. Lack of corruption, for instance, and a reasonable justice system.

Seriously, what country is Gates living in? I suppose when you are the richest man in the world it’s pretty easy to live in a bubble. He is so obsessed with the problems of the outside world and the fact that they are more corrupt than we are, that he is completely blind to the very dangerous trends happening in America.

What a joke.

The entire interview can be read here.

Here’s What The Richest Man In The World Thinks About Snowden And NSA Surveillance | Zero Hedge

Here’s What The Richest Man In The World Thinks About Snowden And NSA Surveillance | Zero Hedge.

Submitted by Mike Krieger of Liberty Blitzkrieg blog,

So Bill Gates recently gave an interview to Rolling Stone magazine. The vast majority of the interview focused on his philanthropic efforts, with a particular focus on poverty and climate change. However, several questions were brought up on illegal NSA surveillance in general, and Edward Snowden in particular.

His answers reveal one of the biggest problems facing America today, which is the fact that the billionaire class as a whole does not question or rock the boat whatsoever. They criticize only when it is convenient or easy to do so, never putting themselves at risk for the sake of civil liberties and the Constitution.

In mosts cases, this is due to the fact that they themselves are the characters pulling the strings of the political class in Washington D.C. So when it comes down to it, their policies ultimately become our policies.

It is also important to note that Microsoft was a particularly eager participant in NSA spying from the very beginning. For example, according to the following PRISM slide provided by Edward Snowden, we see that Gates’ company was the first to become involved. In fact, they were participating a full six months before Yahoo!, while Apple didn’t join until a year after Steve Jobs died.

What a tangled web we have weaved. Now from Rolling Stone:

Question: When people think about the cloud, it’s not only the accessibility of information and their documents that comes to mind, but also their privacy – or lack of it.

Gates: Should there be cameras everywhere in outdoor streets? My personal view is having cameras in inner cities is a very good thing. In the case of London, petty crime has gone down. They catch terrorists because of it. And if something really bad happens, most of the time you can figure out who did it. There’s a general view there that it’s not used to invade privacy in some way. Yet in an American city, in order to take advantage of that in the same way, you have to trust what this information is going to be used for.

Do they really catch terrorists because of it in London? Because in the U.S., the NSA chief already admitted that the entire spy program has stopped essentially zero terrorist attacks. It certainly didn’t stop the Boston bombings. So what are we giving up our privacy for exactly?

Question: Thanks to Edward Snowden, who has leaked tens of thousands of NSA documents, we are. Do you consider him a hero or a traitor?

Gates: I think he broke the law, so I certainly wouldn’t characterize him as a hero. If he wanted to raise the issues and stay in the country and engage in civil disobedience or something of that kind, or if he had been careful in terms of what he had released, then it would fit more of the model of “OK, I’m really trying to improve things.” You won’t find much admiration from me.

Sorry Billy boy, but we have had many whistleblowers in the past who went through the system and they ended up in jail or their lives were ruined. For example, the only person imprisoned for torture in the USA is the guy who exposed the torture program, John Kiriakou.

Question: Even so, do you think it’s better now that we know what we know about government surveillance?

Gates: The government has such ability to do these things. There has to be a debate. But the specific techniques they use become unavailable if they’re discussed in detail. So the debate needs to be about the general notion of under what circumstances should they be allowed to do things.

First of all, without the Snowden revelations, there would be no “debate.” As it stands, the intelligence complex and Obama don’t seem to have much interest in changing a single thing anyway.

Before Snowden proved us right, those who accurately claimed the NSA was doing all of these things were labeled paranoid conspiracy theorists. Moreover, how can anyone seriously defend these “techniques” in light of the recent revelations that show activities so egregious that security experts think they threaten the infrastructure of the entire internet?

Gates goes on to ponder…

Should surveillance be usable for petty crimes like jaywalking or minor drug possession? Or is there a higher threshold for certain information?Those aren’t easy questions.

How are those not easy questions? They are exceedingly easy questions for a civilized society. The answer is no. Unless you want to toss even more citizens in jail for non-violent offenses, because having 25% of the world’s prison population and only 5% of its population is not inhumane enough.

More from Gates…

The U.S. government in general is one of the better governments in the world. It’s the best in many, many respects. Lack of corruption, for instance, and a reasonable justice system.

Seriously, what country is Gates living in? I suppose when you are the richest man in the world it’s pretty easy to live in a bubble. He is so obsessed with the problems of the outside world and the fact that they are more corrupt than we are, that he is completely blind to the very dangerous trends happening in America.

What a joke.

The entire interview can be read here.

Russia Vetoes, China Abstains From UN Security Council Resolution On Ukraine | Zero Hedge

Russia Vetoes, China Abstains From UN Security Council Resolution On Ukraine | Zero Hedge.

In a rather concerning (though not entirely surprising) turn of events, the United Nations (which may well need to be renamed after this) is making headlines:

  • *RUSSIA REJECTS U.S. DRAFT RESOLUTION ON UKRAINE, CHURKING SAYS
  • *U.S. DRAFT DOES NOT DIRECTLY BLAME RUSSIA FOR CRISIS IN UKRAINE
  • *RUSSIA VETOES UN SECURITY COUNCIL RESOLUTION ON UKRAINE CRISIS
  • *CHINA ABSTAINS ON UN RESOLUTION ON UKRAINE

And then the US comes over the top:

  • *POWER SAYS UN VOTE SHOWS RUSSIA ‘ISOLATED, ALONE, WRONG’

Well “isolated and alone” with China?

#UK: ‘#Russia stands isolated in this Council & in the intl comm’ ‘ball is firmly in Russia’s court’ #Ukraine #Crimea pic.twitter.com/m3xBGDDXS9

— Ukrainian Updates (@Ukroblogger) March 15, 2014

It is hardly surprising since the UN Resolution declared Sunday’s referendum on Crimea as invalid but China’s abstention makes it clear that the 2nd largest economy in the world is in no way supportive of the West’s plans and is siding more with Russia (albeit in a diplomatically safe way – for now).

Here is The Diplomat’s Wei Zongyou on China’s potential role to offer some constructive diplomacy to resolve the impasse:

Though far away from China, and definitely not affecting China’s “core interests,” Ukraine crisis is increasingly placing China in a diplomatic dilemma. On the one hand,  the crisis aggravated by the “peaceful entry” of Russian soldiers into Crimea and the latter’s plan to break away from Ukraine through a referendum is diametrically opposed to China’s long-held principle and position of non-interference and anti-separatism; on the other hand, if China sympathizes with Kiev’s new government or the West’s view of point, it will surely alienate Russia, with which China has forged close strategic relations in recent years. What’s more, as Russia and the United States are both wooing China for support and as the situation in Ukraine goes from bad to worse, how could China still stand on the fence while not alienating either and transgressing on its own long held principle?

In view of the delicacy of the situation and the inherent dilemma, China’s response, so far, has been very cautious and intentionally ambiguous. However, as the United States and Europe push for tougher measures and sanctions against Russia, and if Kiev decides to put its case before the UN Security Council, which would seem very likely, China’s diplomatic leeway will be increasingly squeezed. Beijing will have to make its position more clearly heard and play a more active role, as new Foreign Minister Wang Yi suggested at a People’s Congress press conference.

The good news is that there is still some room for diplomacy:

First, neither the West nor Russia wants war, even cold war. For a post-modern Europe, a war with a nuclear-armed Russia is unthinkable. Even a cold war of some form would be unbearably costly, if not an outright disaster, for the struggling European economy. Britain, France and Germany each have huge economic interests with Russia. The budget-constrained Obama administration, meanwhile, just doesn’t have the means or the will to wage or even imagine a small, conventional war with Russia. For Russia, although it is disillusioned with the West, it is not prepared physically or psychologically to have a war, hot or cold, with Western powers.

Second, the United States, Europe and Russia all want to find a reasonable way out of the current crisis, as of course does the Ukraine government. No doubt, Russia’s action in Crimea surprised both the U.S. and Europe, which find themselves pressed by world opinion to take firm action, even though they are not prepared and reluctant to do so. And while they push for some kind of economic sanctions against Russia, they still don’t want to shut the door of negotiation and push Moscow into corner. As for Russia, though it did expect some resentment and criticism from the West, it is not prepared to face the prospect of tough economic sanctions and political isolation. If offered a decent solution, Russia will not be foolhardy.

Third, an autonomous Crimea within Ukraine, within which Russia’s military presence can be guaranteed, is in the best interests of Ukraine, Russia and the international community. Under the current situation, what worries Kiev most is the possible loss of Crimea and the Russian threat to its territorial sovereignty and integrity. In its turn, Russia’s nightmare is a pro-West Ukraine, hostile to Russia and opposed to its military presence in Crimea. If each can get what it wants to and avoid what it fears, a solution may be found.

Given these common interests, China can play an active role in facilitating a diplomatic solution to the current crisis.

First, China could embark on a quiet diplomacy, taking advantage of its close strategic relations with Russia. At present, in the shadow of looming economic sanctions from the U.S and Europe, the chance of Russia backing down in bilateral or multilateral dialogues with the West is very slim. Russian President Vladimir Putin is not going to bow to the West because of sanctions. However, if China can quietly offer Russia a helping hand, talking from the perspective of a close friend of what is in Russia’s best interest concerning Ukraine, something Putin knows better than anybody else, the perhaps the Russian president will be more willing to listen. And Chinese President Xi Jinping can reciprocate Putin’s phone call and offer his advice as a friend.

Second, if Putin is interested in China’s advice, Beijing should seek Washington’s promise or even guarantee of the status of Russian military base in Crimea and the cancellation of economic sanctions.

Third, once a promise or even guarantee is secured, China should work together with Germany, whose position and attitudes are somewhat different from those of the United States and other European countries, to persuade Russia to de-escalate the situation and seek a diplomatic solution to the crisis.

Of course, if Russia is unwilling to take China’s advice as a friend, Beijing should also be straight with Moscow, telling it that China will not be comfortable with, let alone support, the secession of Ukraine territory, which would be contrary to China’ s long-held principle. And Beijing should also be frank in conveying that Russia cannot count on China’s vote if the case of Crimea’s independence or secession is put before the Security Council by the Ukraine government.

And indeed they did not get their vote – but clearly China is still playing the game with their abstention.

Russia Vetoes, China Abstains From UN Security Council Resolution On Ukraine | Zero Hedge

Russia Vetoes, China Abstains From UN Security Council Resolution On Ukraine | Zero Hedge.

In a rather concerning (though not entirely surprising) turn of events, the United Nations (which may well need to be renamed after this) is making headlines:

  • *RUSSIA REJECTS U.S. DRAFT RESOLUTION ON UKRAINE, CHURKING SAYS
  • *U.S. DRAFT DOES NOT DIRECTLY BLAME RUSSIA FOR CRISIS IN UKRAINE
  • *RUSSIA VETOES UN SECURITY COUNCIL RESOLUTION ON UKRAINE CRISIS
  • *CHINA ABSTAINS ON UN RESOLUTION ON UKRAINE

And then the US comes over the top:

  • *POWER SAYS UN VOTE SHOWS RUSSIA ‘ISOLATED, ALONE, WRONG’

Well “isolated and alone” with China?

#UK: ‘#Russia stands isolated in this Council & in the intl comm’ ‘ball is firmly in Russia’s court’ #Ukraine #Crimea pic.twitter.com/m3xBGDDXS9

— Ukrainian Updates (@Ukroblogger) March 15, 2014

It is hardly surprising since the UN Resolution declared Sunday’s referendum on Crimea as invalid but China’s abstention makes it clear that the 2nd largest economy in the world is in no way supportive of the West’s plans and is siding more with Russia (albeit in a diplomatically safe way – for now).

Here is The Diplomat’s Wei Zongyou on China’s potential role to offer some constructive diplomacy to resolve the impasse:

Though far away from China, and definitely not affecting China’s “core interests,” Ukraine crisis is increasingly placing China in a diplomatic dilemma. On the one hand,  the crisis aggravated by the “peaceful entry” of Russian soldiers into Crimea and the latter’s plan to break away from Ukraine through a referendum is diametrically opposed to China’s long-held principle and position of non-interference and anti-separatism; on the other hand, if China sympathizes with Kiev’s new government or the West’s view of point, it will surely alienate Russia, with which China has forged close strategic relations in recent years. What’s more, as Russia and the United States are both wooing China for support and as the situation in Ukraine goes from bad to worse, how could China still stand on the fence while not alienating either and transgressing on its own long held principle?

In view of the delicacy of the situation and the inherent dilemma, China’s response, so far, has been very cautious and intentionally ambiguous. However, as the United States and Europe push for tougher measures and sanctions against Russia, and if Kiev decides to put its case before the UN Security Council, which would seem very likely, China’s diplomatic leeway will be increasingly squeezed. Beijing will have to make its position more clearly heard and play a more active role, as new Foreign Minister Wang Yi suggested at a People’s Congress press conference.

The good news is that there is still some room for diplomacy:

First, neither the West nor Russia wants war, even cold war. For a post-modern Europe, a war with a nuclear-armed Russia is unthinkable. Even a cold war of some form would be unbearably costly, if not an outright disaster, for the struggling European economy. Britain, France and Germany each have huge economic interests with Russia. The budget-constrained Obama administration, meanwhile, just doesn’t have the means or the will to wage or even imagine a small, conventional war with Russia. For Russia, although it is disillusioned with the West, it is not prepared physically or psychologically to have a war, hot or cold, with Western powers.

Second, the United States, Europe and Russia all want to find a reasonable way out of the current crisis, as of course does the Ukraine government. No doubt, Russia’s action in Crimea surprised both the U.S. and Europe, which find themselves pressed by world opinion to take firm action, even though they are not prepared and reluctant to do so. And while they push for some kind of economic sanctions against Russia, they still don’t want to shut the door of negotiation and push Moscow into corner. As for Russia, though it did expect some resentment and criticism from the West, it is not prepared to face the prospect of tough economic sanctions and political isolation. If offered a decent solution, Russia will not be foolhardy.

Third, an autonomous Crimea within Ukraine, within which Russia’s military presence can be guaranteed, is in the best interests of Ukraine, Russia and the international community. Under the current situation, what worries Kiev most is the possible loss of Crimea and the Russian threat to its territorial sovereignty and integrity. In its turn, Russia’s nightmare is a pro-West Ukraine, hostile to Russia and opposed to its military presence in Crimea. If each can get what it wants to and avoid what it fears, a solution may be found.

Given these common interests, China can play an active role in facilitating a diplomatic solution to the current crisis.

First, China could embark on a quiet diplomacy, taking advantage of its close strategic relations with Russia. At present, in the shadow of looming economic sanctions from the U.S and Europe, the chance of Russia backing down in bilateral or multilateral dialogues with the West is very slim. Russian President Vladimir Putin is not going to bow to the West because of sanctions. However, if China can quietly offer Russia a helping hand, talking from the perspective of a close friend of what is in Russia’s best interest concerning Ukraine, something Putin knows better than anybody else, the perhaps the Russian president will be more willing to listen. And Chinese President Xi Jinping can reciprocate Putin’s phone call and offer his advice as a friend.

Second, if Putin is interested in China’s advice, Beijing should seek Washington’s promise or even guarantee of the status of Russian military base in Crimea and the cancellation of economic sanctions.

Third, once a promise or even guarantee is secured, China should work together with Germany, whose position and attitudes are somewhat different from those of the United States and other European countries, to persuade Russia to de-escalate the situation and seek a diplomatic solution to the crisis.

Of course, if Russia is unwilling to take China’s advice as a friend, Beijing should also be straight with Moscow, telling it that China will not be comfortable with, let alone support, the secession of Ukraine territory, which would be contrary to China’ s long-held principle. And Beijing should also be frank in conveying that Russia cannot count on China’s vote if the case of Crimea’s independence or secession is put before the Security Council by the Ukraine government.

And indeed they did not get their vote – but clearly China is still playing the game with their abstention.

Ukraine Says It Has Repelled A Russian Army Attempt To Enter Region Adjacent To Crimea | Zero Hedge

Ukraine Says It Has Repelled A Russian Army Attempt To Enter Region Adjacent To Crimea | Zero Hedge.

With a day left until the critical, if widely expected, results from the Crimean referendum are revealed, it is worth recalling the main footnote in last night’s State Department travel alert for Russia: “all U.S. citizens located in or considering travel to the border region, specifically the regions bordering Ukraine in Bryansk, Kursk, Belgorod, Voronezh, and Rostov Oblasts and Krasnodar Krai, should be aware of the potential for escalation of tensions, military clashes (either accidental or intentional).” See, for the purpose of a military provocation, “accidental” will do. It is therefore not surprising to see that moments ago all major news wires blasted the following headline, quoting the Ukraine ministry of defense:

  • UKRAINIAN MILITARY REPELS ATTEMPT BY RUSSIAN FORCES TO ENTER REGION ADJACENT TO CRIMEA-UKRAINE’S DEFENCE MINISTRY

The incursion allegedly took place in the Ukraine region of Kherson, neighboring the Crimea.

Here is the full google translated statement from the Ministry website:

Another provocation on the part of members of the Armed Forces of the Russian Federation has failed.

 

Today, 15 March 2014, forces of the Armed Forces of Ukraine halted the penetration of the Armed Forces of the Russian Federation on the territory of Kherson Oblast from the “Arabatka.” Response was made immediately.

So the official line is that the Ukraine repelled a Russian “military force” in a region inside east Ukraine and out of Crimea the day after Russia’s foreign minister Lavrov said Russia has no plans to Invade Ukraine? Call us cynical, but something tells us if Russians wanted to “penetrate” east Ukraine, the would have done so without “being repelled.”

Either way, here is Reuters’ take:

Ukraine’s military scrambled aircraft and paratroops on Saturday to repel an attempt by Russian forces to enter a long spit of land belonging to a region adjacent to Crimea, Ukraine’s defence ministry said.

 

“Units of Ukraine’s armed forces today…repelled an attempt by servicemen of the armed forces of the Russian Federation to enter the territory of Kherson region on Arbatskaya Strelka,” a ministry statement said. “This was repelled immediately.”

 

It said the Ukrainian military used aircraft, ground forces and its aeromobile battalion in the operation. The territory in question is a long spit of land running parallel to the east of Ukraine’s Crimea peninsula, now controlled by Russian forces.

But just so Russia isn’t accused of being inert, moments ago it too re-escalate the war of words and provocations, either accidental or intentional, and stated that:

  • RUSSIA’S FOREIGN MINISTRY SAYS REQUESTS FOR DEFENCE OF PEACEFUL CITIZENS IN UKRAINE WILL BE CONSIDERED

Specifically, the Russian Foreign Ministry says in website statement that it will examine Ukrainians’ requests. Armed radicals are heading to eastern Ukrainian cities of Donetsk, Lugansk. Radicals provoked 2 deaths at pro-Russian rally in Kharkiv. The full statement is below:

On March 14 in Kharkov Ukraininan elements including the “Right Sector” arranged provocation against peaceful demonstrators who came to express their attitude to the so-called new government. As a result, the militants opened fire, killing two people, some were injured.

 

Of disturbing information that from Kharkov Donetsk and Lugansk left column with armed mercenaries “right sector” , whose leaders have announced the opening of the “Eastern Front” , and on one of the garment factories in Russia urgently sew uniforms.

 

At the risk of making the Verkhovna Rada of legitimizing the “right sector ” and other radicals by converting them into system power structures like the National Guard

paid attention Secretary of State John Kerry Russian Foreign Minister Sergey Lavrov during their meeting in London on 14 March . of While Lavrov urged John Kerry to use Washington’s influence on Kiev to curb rampant ultra- nationalists.

 

Russia To receive many calls asking to protect civilians. These applications will be considered.

Meanwhile in Crimea, the Russian flag is already flying above the Crimean Supreme Council:

And finally, just in case things weren’t exciting enough, the US appears to finally be flexing its muscles too.

  • U.S. WARSHIP TRUXTUN TO CARRY OUT FURTHER EXERCISES WITH ALLIES IN BLACK SEA-COMMANDER

From Reuters:

The USS Truxtun, a U.S. guided-missile destroyer, will carry out more exercises with allied ships in the Black Sea, its commander said on Saturday, in a further sign of the international response to Russia’s actions in Ukraine. Commander Andrew Biehn was briefing reporters aboard the 300-crew destroyer as it lay docked in a Bulgarian port.

 

The USS Truxtun last week took part in drills with Romanian and Bulgarian ships a few hundred miles from Russian forces that entered Ukraine’s Russian-majority of Crimea after mass protests toppled the country’s pro-Moscow president.

If all this has happened while it is still light in Ukraine and before the Crimean referendum, we can’t wait until darkness falls on Sunday night.

Ukraine Says It Has Repelled A Russian Army Attempt To Enter Region Adjacent To Crimea | Zero Hedge

Ukraine Says It Has Repelled A Russian Army Attempt To Enter Region Adjacent To Crimea | Zero Hedge.

With a day left until the critical, if widely expected, results from the Crimean referendum are revealed, it is worth recalling the main footnote in last night’s State Department travel alert for Russia: “all U.S. citizens located in or considering travel to the border region, specifically the regions bordering Ukraine in Bryansk, Kursk, Belgorod, Voronezh, and Rostov Oblasts and Krasnodar Krai, should be aware of the potential for escalation of tensions, military clashes (either accidental or intentional).” See, for the purpose of a military provocation, “accidental” will do. It is therefore not surprising to see that moments ago all major news wires blasted the following headline, quoting the Ukraine ministry of defense:

  • UKRAINIAN MILITARY REPELS ATTEMPT BY RUSSIAN FORCES TO ENTER REGION ADJACENT TO CRIMEA-UKRAINE’S DEFENCE MINISTRY

The incursion allegedly took place in the Ukraine region of Kherson, neighboring the Crimea.

Here is the full google translated statement from the Ministry website:

Another provocation on the part of members of the Armed Forces of the Russian Federation has failed.

 

Today, 15 March 2014, forces of the Armed Forces of Ukraine halted the penetration of the Armed Forces of the Russian Federation on the territory of Kherson Oblast from the “Arabatka.” Response was made immediately.

So the official line is that the Ukraine repelled a Russian “military force” in a region inside east Ukraine and out of Crimea the day after Russia’s foreign minister Lavrov said Russia has no plans to Invade Ukraine? Call us cynical, but something tells us if Russians wanted to “penetrate” east Ukraine, the would have done so without “being repelled.”

Either way, here is Reuters’ take:

Ukraine’s military scrambled aircraft and paratroops on Saturday to repel an attempt by Russian forces to enter a long spit of land belonging to a region adjacent to Crimea, Ukraine’s defence ministry said.

 

“Units of Ukraine’s armed forces today…repelled an attempt by servicemen of the armed forces of the Russian Federation to enter the territory of Kherson region on Arbatskaya Strelka,” a ministry statement said. “This was repelled immediately.”

 

It said the Ukrainian military used aircraft, ground forces and its aeromobile battalion in the operation. The territory in question is a long spit of land running parallel to the east of Ukraine’s Crimea peninsula, now controlled by Russian forces.

But just so Russia isn’t accused of being inert, moments ago it too re-escalate the war of words and provocations, either accidental or intentional, and stated that:

  • RUSSIA’S FOREIGN MINISTRY SAYS REQUESTS FOR DEFENCE OF PEACEFUL CITIZENS IN UKRAINE WILL BE CONSIDERED

Specifically, the Russian Foreign Ministry says in website statement that it will examine Ukrainians’ requests. Armed radicals are heading to eastern Ukrainian cities of Donetsk, Lugansk. Radicals provoked 2 deaths at pro-Russian rally in Kharkiv. The full statement is below:

On March 14 in Kharkov Ukraininan elements including the “Right Sector” arranged provocation against peaceful demonstrators who came to express their attitude to the so-called new government. As a result, the militants opened fire, killing two people, some were injured.

 

Of disturbing information that from Kharkov Donetsk and Lugansk left column with armed mercenaries “right sector” , whose leaders have announced the opening of the “Eastern Front” , and on one of the garment factories in Russia urgently sew uniforms.

 

At the risk of making the Verkhovna Rada of legitimizing the “right sector ” and other radicals by converting them into system power structures like the National Guard

paid attention Secretary of State John Kerry Russian Foreign Minister Sergey Lavrov during their meeting in London on 14 March . of While Lavrov urged John Kerry to use Washington’s influence on Kiev to curb rampant ultra- nationalists.

 

Russia To receive many calls asking to protect civilians. These applications will be considered.

Meanwhile in Crimea, the Russian flag is already flying above the Crimean Supreme Council:

And finally, just in case things weren’t exciting enough, the US appears to finally be flexing its muscles too.

  • U.S. WARSHIP TRUXTUN TO CARRY OUT FURTHER EXERCISES WITH ALLIES IN BLACK SEA-COMMANDER

From Reuters:

The USS Truxtun, a U.S. guided-missile destroyer, will carry out more exercises with allied ships in the Black Sea, its commander said on Saturday, in a further sign of the international response to Russia’s actions in Ukraine. Commander Andrew Biehn was briefing reporters aboard the 300-crew destroyer as it lay docked in a Bulgarian port.

 

The USS Truxtun last week took part in drills with Romanian and Bulgarian ships a few hundred miles from Russian forces that entered Ukraine’s Russian-majority of Crimea after mass protests toppled the country’s pro-Moscow president.

If all this has happened while it is still light in Ukraine and before the Crimean referendum, we can’t wait until darkness falls on Sunday night.

China Widens Dollar Trading Band From 1% To 2%, Yuan Volatility Set To Spike | Zero Hedge

China Widens Dollar Trading Band From 1% To 2%, Yuan Volatility Set To Spike | Zero Hedge.

In the aftermath in the recent surge in China’s renminbi volatility which saw it plunge at the fastest pace in years, many, us included, suggested that the immediate next step in China’s “fight with speculators” (not to mention the second biggest trade deficit in history), was for the PBOC to promptly widen the Yuan trading band, something it hasn’t done since April 2012, with the stated objective of further liberalizing its monetary system and bringing the currency that much closer to being freely traded and market-set. Overnight it did just that, when it announced it would widen the Yuan’s trading band against the dollar from 1% to 2%.

The PBOC’s overnight release:

The healthy development of China’s current foreign exchange market, trading body independent pricing and risk management capabilities continue to increase. To meet the requirements of market development, increase the intensity of market-determined exchange rate, and establish a market-based, managed floating exchange rate system, the People’s Bank of China decided to expand the foreign exchange market, the floating range of the RMB against the U.S. dollar, is now on the relevant matters are announced as follows:

 

Since March 17, 2014, inter-bank spot foreign exchange market trading price of the RMB against the U.S. dollar floating rate of expansion from 1% to 2%, or a daily inter-bank spot foreign exchange market trading price of the RMB against the U.S. dollar foreign exchange transactions in China can be Center announced the same day the central parity of RMB against the U.S. dollar and down 2% in the amplitude fluctuations. Designated foreign exchange banks to provide customers with the highest cash offer price of $ day of the minimum cash purchase price difference does not exceed the magnitude of the day the central parity rate expanded from 2% to 3%, other provisions remain in compliance, “the People’s Bank of China on the interbank foreign exchange market Trading foreign exchange designated banks listed on the exchange rate and the exchange rate management issues related to notice “(Yin Fa [2010] No. 325) execution.

 

People’s Bank of China will continue to improve the RMB exchange rate formation mechanism of the market, further develop the role of the market in the RMB exchange rate formation mechanism, strengthen two-way floating RMB exchange rate flexibility, to maintain the RMB exchange rate basically stable at an adaptive and equilibrium level.

Amusingly, we may have the first attempt at forward guidance by yet another central bank: that of China. As the WSJ explains: “There is no basis for big appreciation of the renminbi,” the PBOC said, noting that China’s trade surplus now represents only 2.1% of its gross domestic product. At the same time, “there is no basis for big depreciation of renminbi,” the central bank added, saying that risks in China’s financial system are “under control” and the country’s big foreign-exchange reserves can serve as a big buffer against any external shocks.

Alas, in China merely soothing words hardly ever do the job which is why “while pledging to give the market a bigger role in setting the yuan’s exchange rate, the PBOC said it would still implement “necessary adjustments” to prevent big, abnormal fluctuations in the yuan’s exchange rate.”

The macro thinking behind China’s move was foretold well in advance, but for those who missed it, the WSJ does a good recap:

the change, which followed Beijing’s landmark move in 2012 to double the yuan’s trading bandwidth, is seen as an important step toward establishing a market-based exchange-rate system, whereby the yuan would move up and down just like any other major currency.

 

The exchange-rate reform is part of China’s plan to overhaul its creaky financial sector, elevate the country’s status in the international monetary system and someday challenge the U.S. dollar as the de facto global currency.

 

A freer yuan can also help China deflect foreign complaints about its currency policies. The U.S. and other advanced economies have pressed Beijing for years to relax its hold on the yuan and allow it to appreciate at a faster pace. The hope is to boost consumer demand in China as consumers in Western countries such as the U.S. and Europe pull back amid still-fragile economies.

 

The move to widen the yuan’s trading range comes as China’s juggernaut economic machine is slowing down, leading to questions of whether leaders would continue to press ahead on fundamental economic change, or pull back to help struggling companies.

For some even the doubling in the rate band is not enough:

Widening the band would give a greater indication of how the market values the yuan. A prominent Chinese economist, Yu Yongding, for instance, advocates that the daily band be widened to 7.5% in either direction, which would essentially let the market fully determine the rate.

But perhaps the biggest message from today’s announcement is that China is preparing to focus far more on its internal affairs rather than dealing with daily FX manipulation, as well as the micromanagement of China’s reserves, which recently may or may not have been sod off in the form of US Treasurys.

Meanwhile, loosening its hold on the yuan can also help the PBOC focus more on domestic monetary policy while reducing the need for currency intervention by the central bank.

 

That is because when the yuan’s floating range gets bigger, the yuan won’t touch the upper or lower limit of the band as frequently as it did in the past, thereby making it less necessary for the PBOC to meddle in the currency market in a bid to rein in or prop up the yuan’s value.

 

As a result, with the expanded trading band, the PBOC is expected to issue fewer yuan for the purpose of exchange-rate intervention, and that could leave the central bank with more room to manage the domestic monetary policy.

 

“The PBOC will still resort to intervention, but a wider trading band means that it may not need to intervene as readily as it did in the past,” said Christy Tan, a currency specialist at Bank of America Merrill Lynch.

One thing is certain: as the world digests the latest out of the country that creates credit at a pace that is five times greater than the US, the volatility in the CNY will soar, at jthe worst possible time. Because as we explained before, all global specs, especially those out of Hong Kong need, is for the USDCNY to surge above 6.20 for the margin calls to start coming in fast and furious.

* * *

Finally, here are some kneejerk reactions by Wall Street analysts, via Bloomberg.

UBS

 

  • The action, coupled with more two- way volatility, could help discourage “hot money” inflows and encourage companies and banks to be more vigilant about exchange-rate risks, Wang Tao, chief China economist at UBS AG in Hong Kong, says in an e-mail.
  • Action doesn’t have direct implications for direction of CNY against USD
  • UBS still sees exchange rate “broadly unchanged, with increased two-way volatility”
  • Action isn’t surprising because central bank has said for a qhile that it would widen band soon: Wang

Morgan Stanley

  • “We do not think the PBOC took this move to accelerate the CNY depreciation for mercantile interests to stabilize growth,” Morgan Stanley economist Helen Qiao says in e-mailed comment.
  • Wider yuan band will help deter “carry trade speculators” as volatility increases
  • Action is “largely in line with our expectation, as a major step in China’s FX reform” and is part of government’s “continued reform efforts”
  • Recent CNY depreciation created precondition for band widening

Commonwealth Bank of Australia

  • With PBOC dollar purchases being key driver in recent yuan weakness, it will be challenging for yuan to trade at both sides of the doubled trading band in a symmetric fashion, Andy Ji, FX strategist at Commonwealth Bank of Australia, says in email interview.
  • Yuan is unlikely to depreciate substantially without PBOC intervention, given the status of current account surplus and without broad dollar strength
  • Yuan may weaken in 1H then strengthen in 2H, similar to the patterns in past two years

BEA

  • PBOC is likely to guide a weaker yuan through its daily reference rate to ensure there won’t be renewed one-way appreciation bets after doubling the trading band, Bank of East Asia FX analyst Kenix Lai says in phone interview today.
  • Yuan band widening announcement shouldn’t be too surprising to market given the PBOC has already signaled such a move in Feb.
  • Yuan should still be able to deliver mild appreciation in 2014 as China continues to push for yuan internationalization

Bank of America

  • Weaker yuan fixings in past month or so has changed one-way appreciation bias, Albert Leung, BofAML local market strategist for Asia, says in email interview.
  • PBOC wants to widen band when market view is more balanced
  • Not very surprising in terms of band-widening timing
  • Another band widening this year is unlikely
  • Knee-jerk market reaction should be higher volatility, with higher NDF, DF implied rates
  • Long-dated NDFs could weaken further, though not necessarily the daily official fixings
  • Any follow-through after the knee-jerk and whether yuan will weaken further will highly depend on PBOC daily fixing and how macro data and corporate credit situation

ANZ

  • With the band widening and, more importantly, recent spate of weak China data, the bias is for near-term yuan weakness and potentially higher volatility, ANZ FX strategist Irene Cheung says in email interview today.
  • Yuan band widening didn’t come as a surprise
  • Band widening doesn’t necessarily relate to recent PBOC Governor Zhou Xiaochuan’s statement on interest rate liberalization
  • Another widening won’t come so soon given the last move was 2 yrs ago in 2012

China Widens Dollar Trading Band From 1% To 2%, Yuan Volatility Set To Spike | Zero Hedge

China Widens Dollar Trading Band From 1% To 2%, Yuan Volatility Set To Spike | Zero Hedge.

In the aftermath in the recent surge in China’s renminbi volatility which saw it plunge at the fastest pace in years, many, us included, suggested that the immediate next step in China’s “fight with speculators” (not to mention the second biggest trade deficit in history), was for the PBOC to promptly widen the Yuan trading band, something it hasn’t done since April 2012, with the stated objective of further liberalizing its monetary system and bringing the currency that much closer to being freely traded and market-set. Overnight it did just that, when it announced it would widen the Yuan’s trading band against the dollar from 1% to 2%.

The PBOC’s overnight release:

The healthy development of China’s current foreign exchange market, trading body independent pricing and risk management capabilities continue to increase. To meet the requirements of market development, increase the intensity of market-determined exchange rate, and establish a market-based, managed floating exchange rate system, the People’s Bank of China decided to expand the foreign exchange market, the floating range of the RMB against the U.S. dollar, is now on the relevant matters are announced as follows:

 

Since March 17, 2014, inter-bank spot foreign exchange market trading price of the RMB against the U.S. dollar floating rate of expansion from 1% to 2%, or a daily inter-bank spot foreign exchange market trading price of the RMB against the U.S. dollar foreign exchange transactions in China can be Center announced the same day the central parity of RMB against the U.S. dollar and down 2% in the amplitude fluctuations. Designated foreign exchange banks to provide customers with the highest cash offer price of $ day of the minimum cash purchase price difference does not exceed the magnitude of the day the central parity rate expanded from 2% to 3%, other provisions remain in compliance, “the People’s Bank of China on the interbank foreign exchange market Trading foreign exchange designated banks listed on the exchange rate and the exchange rate management issues related to notice “(Yin Fa [2010] No. 325) execution.

 

People’s Bank of China will continue to improve the RMB exchange rate formation mechanism of the market, further develop the role of the market in the RMB exchange rate formation mechanism, strengthen two-way floating RMB exchange rate flexibility, to maintain the RMB exchange rate basically stable at an adaptive and equilibrium level.

Amusingly, we may have the first attempt at forward guidance by yet another central bank: that of China. As the WSJ explains: “There is no basis for big appreciation of the renminbi,” the PBOC said, noting that China’s trade surplus now represents only 2.1% of its gross domestic product. At the same time, “there is no basis for big depreciation of renminbi,” the central bank added, saying that risks in China’s financial system are “under control” and the country’s big foreign-exchange reserves can serve as a big buffer against any external shocks.

Alas, in China merely soothing words hardly ever do the job which is why “while pledging to give the market a bigger role in setting the yuan’s exchange rate, the PBOC said it would still implement “necessary adjustments” to prevent big, abnormal fluctuations in the yuan’s exchange rate.”

The macro thinking behind China’s move was foretold well in advance, but for those who missed it, the WSJ does a good recap:

the change, which followed Beijing’s landmark move in 2012 to double the yuan’s trading bandwidth, is seen as an important step toward establishing a market-based exchange-rate system, whereby the yuan would move up and down just like any other major currency.

 

The exchange-rate reform is part of China’s plan to overhaul its creaky financial sector, elevate the country’s status in the international monetary system and someday challenge the U.S. dollar as the de facto global currency.

 

A freer yuan can also help China deflect foreign complaints about its currency policies. The U.S. and other advanced economies have pressed Beijing for years to relax its hold on the yuan and allow it to appreciate at a faster pace. The hope is to boost consumer demand in China as consumers in Western countries such as the U.S. and Europe pull back amid still-fragile economies.

 

The move to widen the yuan’s trading range comes as China’s juggernaut economic machine is slowing down, leading to questions of whether leaders would continue to press ahead on fundamental economic change, or pull back to help struggling companies.

For some even the doubling in the rate band is not enough:

Widening the band would give a greater indication of how the market values the yuan. A prominent Chinese economist, Yu Yongding, for instance, advocates that the daily band be widened to 7.5% in either direction, which would essentially let the market fully determine the rate.

But perhaps the biggest message from today’s announcement is that China is preparing to focus far more on its internal affairs rather than dealing with daily FX manipulation, as well as the micromanagement of China’s reserves, which recently may or may not have been sod off in the form of US Treasurys.

Meanwhile, loosening its hold on the yuan can also help the PBOC focus more on domestic monetary policy while reducing the need for currency intervention by the central bank.

 

That is because when the yuan’s floating range gets bigger, the yuan won’t touch the upper or lower limit of the band as frequently as it did in the past, thereby making it less necessary for the PBOC to meddle in the currency market in a bid to rein in or prop up the yuan’s value.

 

As a result, with the expanded trading band, the PBOC is expected to issue fewer yuan for the purpose of exchange-rate intervention, and that could leave the central bank with more room to manage the domestic monetary policy.

 

“The PBOC will still resort to intervention, but a wider trading band means that it may not need to intervene as readily as it did in the past,” said Christy Tan, a currency specialist at Bank of America Merrill Lynch.

One thing is certain: as the world digests the latest out of the country that creates credit at a pace that is five times greater than the US, the volatility in the CNY will soar, at jthe worst possible time. Because as we explained before, all global specs, especially those out of Hong Kong need, is for the USDCNY to surge above 6.20 for the margin calls to start coming in fast and furious.

* * *

Finally, here are some kneejerk reactions by Wall Street analysts, via Bloomberg.

UBS

 

  • The action, coupled with more two- way volatility, could help discourage “hot money” inflows and encourage companies and banks to be more vigilant about exchange-rate risks, Wang Tao, chief China economist at UBS AG in Hong Kong, says in an e-mail.
  • Action doesn’t have direct implications for direction of CNY against USD
  • UBS still sees exchange rate “broadly unchanged, with increased two-way volatility”
  • Action isn’t surprising because central bank has said for a qhile that it would widen band soon: Wang

Morgan Stanley

  • “We do not think the PBOC took this move to accelerate the CNY depreciation for mercantile interests to stabilize growth,” Morgan Stanley economist Helen Qiao says in e-mailed comment.
  • Wider yuan band will help deter “carry trade speculators” as volatility increases
  • Action is “largely in line with our expectation, as a major step in China’s FX reform” and is part of government’s “continued reform efforts”
  • Recent CNY depreciation created precondition for band widening

Commonwealth Bank of Australia

  • With PBOC dollar purchases being key driver in recent yuan weakness, it will be challenging for yuan to trade at both sides of the doubled trading band in a symmetric fashion, Andy Ji, FX strategist at Commonwealth Bank of Australia, says in email interview.
  • Yuan is unlikely to depreciate substantially without PBOC intervention, given the status of current account surplus and without broad dollar strength
  • Yuan may weaken in 1H then strengthen in 2H, similar to the patterns in past two years

BEA

  • PBOC is likely to guide a weaker yuan through its daily reference rate to ensure there won’t be renewed one-way appreciation bets after doubling the trading band, Bank of East Asia FX analyst Kenix Lai says in phone interview today.
  • Yuan band widening announcement shouldn’t be too surprising to market given the PBOC has already signaled such a move in Feb.
  • Yuan should still be able to deliver mild appreciation in 2014 as China continues to push for yuan internationalization

Bank of America

  • Weaker yuan fixings in past month or so has changed one-way appreciation bias, Albert Leung, BofAML local market strategist for Asia, says in email interview.
  • PBOC wants to widen band when market view is more balanced
  • Not very surprising in terms of band-widening timing
  • Another band widening this year is unlikely
  • Knee-jerk market reaction should be higher volatility, with higher NDF, DF implied rates
  • Long-dated NDFs could weaken further, though not necessarily the daily official fixings
  • Any follow-through after the knee-jerk and whether yuan will weaken further will highly depend on PBOC daily fixing and how macro data and corporate credit situation

ANZ

  • With the band widening and, more importantly, recent spate of weak China data, the bias is for near-term yuan weakness and potentially higher volatility, ANZ FX strategist Irene Cheung says in email interview today.
  • Yuan band widening didn’t come as a surprise
  • Band widening doesn’t necessarily relate to recent PBOC Governor Zhou Xiaochuan’s statement on interest rate liberalization
  • Another widening won’t come so soon given the last move was 2 yrs ago in 2012
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