Wednesday 2 January 2008

Exchange rate update

China Financial Markets has posted a series of excellent articles on Chinese exchange rates.

What is good about Pettis is that he actually knows what he is talking about which makes a change from reading newspaper article and US press releases on this topic.

For example, in the post below he writes:

By now I think the old argument about whether or not the RMB needed to appreciate is more or less over. The mistake made by many was that contrary to the assumptions of many the need for China to appreciate had little to do with the direct impact of the value of the RMB on the relative prices of Chinese exports and everything to do with China’s lack of domestic monetary policy.

I concur entirely although I suspect there is also the fact that China seems social stability and job creation as far more important that US complaints or rising cash surpluses. Moreover, I am not so sure the the "hot money" issue will be such a problem but as Pettis points out, it needs to be carefully watched.

This post is for those needing a quick catch up on current thinking and is a very insightful article.

Is China sneaking in a revaluation? [CFM]

The RMB keeps strengthening, to 7.2948 as of yesterday. This has it rising at its fastest pace since the peg was broken in July, 2005. According to my friends, some local currency traders see the burst of appreciation we have experienced recently as a sort of back-door “revaluation”. By forcing up the currency over the past few weeks at its fastest pace (2.3% in the past two months), the PBoC is effectively engineering a revaluation over several weeks, while seeming not to violate its promise that it would not do so after the first revaluation in July 2005.


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