Hedge funds previously rode the wave of ‘hot money’ into China, betting that China would further revalue the Yuan in the short-term. According to industry insiders, however, hedge funds may abandon their positions in the Yuan, due to a fundamental lack of profitability. Hedge funds require high returns on their investments, and the 1% interest rates that the Bank of China pays them while they wait for further revaluation has become untenable. It is also becoming more expensive to bet against other Asian currencies, because of higher borrowing costs, which are tied to American interest rates. In short, hedge funds are gradually unraveling their bets on the Yuan; western firms because the best are unprofitable, and Asian firms because they simply don’t believe further revaluations will take place.

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