Managed Floats

Jeffrey “King of Bonds” Gundlach was the former head of the $12 bn TCW Total Return Bond Fund. His presentations on the state of whats happening around the economic world are eagerly awaited and discussed. You can find his latest message here. I am showing two screens that caught my eye. These are the lines of movement of the Chinese Renminbi (RMB) and the Indian Rupee (INR).

The INR is on a “managed float” path. Successive administrations at the Reserve Bank of India (RBI) have managed to maintain and further this strategy of not pegging the INR to a particular foreign currency at a particular exchange rate. Earlier, the RBI used to intervene in the currency markets (it still tried its hand very recently), but the growth in recent trading volumes on the INR means that RBI’s intervention will lack any meaningful punch going forward. The INR has therefore moved a little bit closer to full float status. 

The RMB, on the other hand is undergoing a lot of makeovers. It was earlier pegged to the USD at a fixed rate and then in 2005 when the peg was lifted, all the pent up pressure got released and an immediate revaluation took place. However, the peg was unofficially brought back due to the onset of the financial crisis. Then, in Jun’10, China’s central bank said that it will increase RMB’s flexibility. Now it is moving to managed float status. HSBC had earlier predicted the RMB to become the 3rd major world reserve currency in 15 years. That’s a lot of time for a few more makeovers.