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

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. The new lows for the yuan came after U.S. President Donald Trump unexpectedly announced fresh tariffs on Beijing last week that are set to take effect from Sept. 1. China on Monday said it could slap tariffs on U.S. agricultural goods that it bought recently, state-run media Xinhua reported.

More palatable, devaluation means you're fully in-charge and have reduced the value of currency deliberately to make your exports more competitive; in the process, you overcome any tariff barriers as well. Depreciation means you've lost control and your currency is in free fall.

Supporting a currency drains international reserves. Each day China gets closer to zero. The other hard currency is gold. Watch carefully for sales.

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