My comments in blue.

China ready to end dollar peg

The head of China’s central bank has given the strongest signal yet that the country will move away from pegging its currency to the dollar, but he said any changes would be gradual.

By Garry White

China ready to end dollar peg

At the annual session of the legislative National People’s Congress in Beijing, Zhou Xiaochuan, governor of the People’s Bank of China, said that the days of the “special yuan” policy were numbered. He described the dollar peg as a “temporary” response to the global financial crisis, but gave no timescale for any change in policy. The currency has been pegged at about 6.83 yuan per dollar since July 2008.

Many economists expect China to allow the yuan to appreciate slightly this year, but the cautious tone by Mr Zhou means that any change may not happen for some time. He said that the central bank would maintain the “basic stability” of the currency. So, despite the fact that the Chinese economy grew by 10.7pc in the fourth quarter of last year, the country’s loose monetary policy looks set to continue.

Translation: Consider that China is the only government in the world who is responsibly managing their finances (they just increased the minimum reserve requirement of their banks to 16.5%) – we must slander them in the eyes of the global community so maybe we can get them to budge.

“If we are to exit from irregular policies and return to ordinary economic policies, we must be extremely prudent about our choice of timing,” Mr Zhou said. “This also includes the [yuan] exchange rate policy.”

China’s currency policy has been subject of fierce debate, particularly in the US and Europe, with the country’s central bank accused of keeping the yuan artificially low to promote a domestic exports boom.

Translation: I am trying to convince you that if China wasnt being such a “bad” global citizen their currency would debase itself, all by itself, I mean, why would a currency want to retain any value anyways?

An artificially lower currency makes the country’s goods and services more competitive, leaving other exporters at a disadvantage. Jim O’Neil, Goldman Sach’s chief economist, thinks the Chinese should allow their currency to appreciate by as much as 5pc.

Translation: With a petulant stomp, I say ITS NOT FAIR! Why should someone else be at a disadvantage just because China wont debase the crap out of their currency with the rest of us idiots!

In recent week President Obama has been vocal on the issue of the artificially low currency. “China and its currency policies are impeding the rebalancing [of the global economy] that’s necessary,” Mr Obama told Bloomberg last month.

Translated: More petulant foot stomping, this time by the “Most Powerful man on the Planet”…is he really?

“My goal over the course of the next year is for China to recognize that it is also in their interest to allow their currency to appreciate because, frankly, they have got a potentially overheating economy.”

Translated: I am so out of touch with reality that despite the fact that my own country’s economy is imploding in the worse financial disaster in human history, I think I should be giving these silly Chinamen advice.

As for the rest of the article: More free advice from people with no pot to piss in.

The relative value of the dollar is important to China, as the country is the world’s largest holder of US government debt. According to data form the US Treasury Department, China held $894.8bn (£591bn) of US Treasury securities at the end of December. Roughly two-thirds of the country’s reserves are believed to be in dollars and dollar-denominated assets such as gold.

“The US dollar is still an extremely important currency, playing a key role in international trade, cross-border capital flows, direct investment as well as in determining whether we can smoothly overcome the global financial crisis,” Mr Zhou said.

When China eventually abandons the peg, the country will have to manage its exit strategy carefully. If the central bank allows a gradual appreciation of its currency, which would be the best strategy for its exporters, there could be an inflow of funds from speculators betting on further appreciation. However, a one-off revaluation could deal a severe blow to the country’s manufacturing sector.

My summary: These people have gone completely nuts.

This entry was posted on Tuesday, March 9th, 2010 at 5:43 pm and is filed under Archived. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.