"Kyle Bass: China’s currency would collapse 30% to 40% if they stopped supporting it"

In late 2003 I was visiting a very smart silver trader, with the shiny stuff around $4.10 and the conversation went from the most leveraged long we could think of to the trans-Pacific silver trade from Potosi and Mexico to China and thence to the valuation of China's currency and without even pausing for breath he said it was overpriced by 40%.

That little tidbit made its way into the dusty old "If this happens then do this" file, along with the Tokyo earthquake plan* and the eruption of one of Iceland's big volcanoes at a Volcanic Explosivity Index of 6 or larger.

Here's some thinking from Kyle Bass via CNBC:

• “If they were to ever free float their currency, I think it would drop 30% or 40%,” Bass said of China and its currency, the yuan.
• Bass’s comments came after the Chinese yuan changed hands above 7 against the dollar for the first time since 2008.

Hedge fund manager and Hayman Capital Management founder Kyle Bass said on Monday that without state support, China’s currency would plunge.

“What’s happening in China is they have to have dollars to sell to buy their own currency to hold it up. If they were to ever free float their currency, I think it would drop 30% or 40%,” Bass told CNBC’s “Closing Bell.”

“And the reason is they claim to be 15% of global GDP in dollar terms, but less than 1% of global transactions settled in their own currency,” Bass added. “And so, they prop their currency up...everyone calling them a currency manipulator – they are trying to hold this whole thing together.”

Bass’s comments came after the Chinese yuan crossed a closely watched barrier against the U.S. dollar. The onshore Chinese yuan changed hands above 7 against the dollar, the currency’s weakest levels against the greenback since 2008....

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*Magnitude 7.3 Tokyo earthquake could cost $3 trillion in economic losses
Note that's 3 Trillion dollars not ¥3 Trillion.