The well-known foreign exchange rate provider XE (slogan: “The World's Trusted Currency Authority”) began to show a dramatic “devaluation” in the CNY rate this morning: in a single morning it moved from 6.9 down to 7.46 (at publication time) and still had room to fall. Google and other major sites that use XE data also moved with it. Whether you hold a lot of RMB or USD assets, this is a fairly major move.

xe-cny-exchange-rate-7459

Real or fake?

But is this rate real or fake? The author leans toward this being an XE data error. But to be as complete as possible, we still analyze both sides.

Reasons to support that this is the correct rate

  • XE rates are updated continuously throughout the day, which does not look like a simple mistype.
  • XE has a generally strong reputation and rarely makes mistakes.
  • There have been a number of major events recently (Trump’s election, the resignation of Italy’s president, Trump’s phone issue with Tsai Ing-wen), so exchange rates do have instability factors.
  • The recent trend for the RMB has continued to be depreciation.

Reasons to support that this is an incorrect rate

  • The offshore RMB rate has not shown significant movement; it has even edged slightly higher. If RMB were truly devaluing (and if traders were all referencing XE’s data), there should be an impact.
  • The People's Bank of China publishes its rate once a day; it would not devalue in a “toothpaste-squeeze” way. It also should not devalue at this speed.
  • Bloomberg’s rate data is still showing a 6.9 exchange rate.
  • There is no domestic news in China right now pointing to a sharp RMB devaluation (even though it is evening).

Another possibility is that an institution, ICAP Singapore, in the Singapore Exchange could be buying RMB at such an absurd price, which would make XE data inaccurate.

How to make money/preserve value

If you believe this rate is an error and can find a place willing to exchange RMB at XE’s rate (the author did not find one, but there should be some FX exchange counters that use XE data...), you can convert your USD or HKD (and USD-related exchange positions) into RMB. When the rate returns to normal, convert back to USD. If you believe this rate is correct, you can convert your RMB holdings to USD or USD-related assets immediately. Most banks and other financial institutions are still trading at the old 6.9 rate, so if you trade before the devaluation is complete (transfers, foreign exchange conversions, or UnionPay card spending in the U.S.), you can avoid losses from RMB depreciation.

We end with a reminder: the FX market shifts quickly, especially at odd moments like this, so please think carefully before making any investment decisions. All trading involves risk, and this article provides no (express or implied) guarantees about any investment strategy.