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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.
The latest in a series of small steps to lessen control over the yuan, China will allow domestic trading of yuan options beginning April 1. Not getting too crazy, businesses will be allowed to buy puts and calls from banks, but not be able to write them.
Gold demand grows at an "explosive" pace in China, where an ICBC (IDCBF.PK) exec says the bank sold 7 tons of gold in January, roughly half that sold for the entirety of 2010. Not just physical demand, he sees "frantic demand" for gold-linked deposits, expecting to quintuple 2010's sales.
“The utopia for one stop sourcing for quality and low price has been China... but utopias never last,” says Collective Brands (PSS) CEO Matt Rubel, who is shifting production to Indonesia as Chinese wages continue to bolt higher. Just a tiny rumbling beneath the powerhouse Chinese economy.
Finance Minister Guido Mantega rebuffs Tim Geithner's attempts to enlist Brazil in teaming up to fight China's currency policy, saying the weak dollar is just as concerning as the yuan's value. "There is no common initiative," he says.
Beyondbricspresents a chart of inflation in 4 emerging economies along with their responses. Fastest to act was India, which has now seen at least a leveling, if not fall in inflation. Last to act and now showing the steepest rise in prices are China and Indonesia.
A contrary take on the "positive" surprise in China's January trade data says that the large increase in imports came from an increase in raw materials prices. Imports from the U.S. and Europe were basically flat as opposed to a big jump from China's commodity supplier, Australia.
Currently the head of the G-20, France wishes to lead a transition to a global monetary system "based on several international currencies," says French Economy Minister Lagarde. She hopes to see less need for emerging economies to accumulate massive foreign reserves, i.e. wants China to revalue.
China's trade surplus falls far greater than expectations, coming in at $6.5B in January vs. $13.1B in December. With G20 meetings on tap, the numbers will bolster China's claim that a speedier appreciation of the yuan is unnecessary.
In a move bound to affect monetary policy decisions, the PBOC plans to redefine how it measures liquidity in the Chinese economy. The move will broaden M2 to include a much wider range of loans, many of which are held off balance sheet and had not been counted in the money supply.
"The root of problem is not China but the U.S.," says the head of a Chinese think tank responding to snipes over the yuan. "Yes, we know India's inflation is high and Brazil is raising interest rates, but how can China's currency policy solve your problems?" The man has a point.
Warning that global imbalances are sowing the seeds of the next crisis, IMF Chief Dominique Strauss-Kahn again urges changes to the global monetary system. Primary among those changes should be an increased role for the yuan.
The U.S. remains unsatisfied with progress on the yuan, despite it's nearly 10% real rate of appreciation since June says Treasury undersecretary Lael Barinard. The Senate, meanwhile, prepares legislation similar to that passed by the House, making it easier to impose duties on Chinese imports.