Chinese inflation comes in slightly hot in February, rising to 4.9% vs. expectations of a 4.8% increase. Markets brace for higher interest rates after PBOC Gov. Zhou plays down the role of using currency appreciation to curb inflation. China -0.8%.
Initially cool to the idea, China's high level participation in a currency forum in Nanjing may signal more flexibility in its yuan policy. Curiously, it's the U.S., which considers the meeting a distraction from getting China to be less reliant on exports, which has little interest in the gathering.
Calling for full yuan convertibility in the next 10 years, PBOC board member Xia Bin stops short of advocating a sharp increase in the currency's value. "Hiking the exchange rate is definitely beneficial for curbing inflation ... but we can adopt many other ways to achieve that goal."
China's February trade deficit of $7.3B is the largest in 7 years, and confounds predictions of a $5B surplus. Even with the Lunar New Year affecting the results, it could mean the oft-rumored slowdown in China has arrived. China -1.5%, and a lot of red on this commodity screen.
While saying strong economic growth is likely to lead to credit upgrades in coming years, S&P warns capital flows and inflation pose the key risks to Asian economies. The way out: tighter monetary policy and allowing currencies to rise.
"I can't imagine anything more disastrous to our country," says investor Sam Zell about his worry that the dollar loses reserve currency status. "An awesome benefit that no other country has," claims Zell, who says the end result of dollar weakness will be sharply lower living standards.
Lu Mai, an influential Chinese economist, pegs the yuan's undervaluation at about 8%, not so big of a worry for the U.S. Believing Chinese inflation has more to do with rising labor costs and over-expansion of bank credit then too cheap of a currency, Mr. Lu thinks the current gradual rise in the yuan is the correct policy.
Western banks hoping to get in on the exploding yuan trade will have to bide their time as Chinese state-run banks continue to dominate the action. HSBC expects 50% of China's trade with emerging markets to be settled in renminbi within 3-5 years, from less than 3% currently.
Talk of a "currency war" gives way to a "truce" as emerging economies call off the fight against currency appreciation to assist in their battle against inflation. "The quickest way to put a cap on inflation is to look at ways that would strengthen your currency," says a Nomura analyst. Emerging currency ETF: CEW.
China can do little about declining returns on its foreign exchange reserves since diversifying into assets like commodities would only skew their prices higher says PBOC vice governor Yi Gang. Looking over a longer time frame than the last 3 years, Mr. Yi says the yuan's rise has been in line with other emerging economies.
Leading with a picture of a crumbling building labeled "U.S. economy" being held up by a Chinese symbol, China's advertising supplement in the WaPo takes its yuan policy to the people. "Excessive spending ... and low interest rates should be blamed for the trade imbalance." Who's to argue?
"If there's demand from the market ... the change may be quicker than we imagined before," says a PBOC official referring to liberalization of the yuan. Basic steps, such as yuan deposits in Hong Kong, have led to a surge in uses and desire for the currency.
A look at the disconnect between real and nominal exchange rates for the yuan-dollar pair points at the source for China's inflation: printing yuan and buying dollars. Maybe Bernanke's right - renminbi revaluation could solve problems for China as well as the U.S.
The PBOC raises banks' reserve ratio to 19.5% from 19%. It's the latest baby step at trying to rein in galloping inflation and lending. "China has a profound liquidity and inflation problem that is ... getting further ahead of policy makers," says an economist. China -0.9%.
Chinese officials are backing off tentative plans to host a "currency seminar" in March. French President Sarkozy's grandiose plans for the event worried Chinese officials who have little desire to talk about yuan policy in a highly visible public forum.
China estimates hot money inflows after adjustments to have been about $35B in 2010, accounting for 7.6% of reserve accumulation. Large amounts in absolute terms, the numbers don't square with the level of concern expressed by Chinese leaders about speculative flows.
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