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from George Chen:

Is Beijing brewing something?

By George Chen
The opinions expressed are the author’s own.

There are growing signs that something is brewing in relation to China's foreign exchange rate regime.

When Hong Kong traders returned from the Easter break, many were surprised to be told by their mainland colleagues about growing market speculation that Beijing might be planning a one-off deal to lift the value of the yuan -- some say by as much as 10 percent.

Others are more cautious. They say a one-off revaluation sounds unlikely although Beijing may relax foreign exchange controls by setting new "game rules" around the upcoming Labour Day holiday in the first week of May. The Financial Times yesterday ran a nice scoop about sovereign wealth fund China Investment Corp being set to win new funds, likely $100-200 billion, as Beijing seeks to diversify its massive foreign exchange reserves, now exceeding $3 trillion.

I support the idea of further empowering CIC. If Beijing wants to reduce its exposure to U.S. debt, expanding direct investment worldwide is a very workable solution. Will Beijing make a formal statement on its ambition to boost CIC's shopping power abroad during the Labour Day holiday?

from MacroScope:

Unlocking the Yuan

Reuters's top news and innovation teams have put together a web site on the yuan and the debate over its revaluation. Particularly worth a look after the weekend's statement by China that it would allow more flexibility in its currency exchange. You can access it here, but it looks like this:

Yuan2

from Breakingviews:

China can learn from Singapore’s revaluation

Singapore might just be a dot on the map, but it has long been viewed as a leader in economic policy by other Asian countries, including China. That's why investors took so much notice when the city-state revalued its currency by about 1.3 percent.

Singapore shifted its currency band to contain imported inflation. This approach is not open to China, whose inflationary pressures are home-grown, and whose exchange rate looks more undervalued. Nevertheless, Beijing can learn from Singapore's model, which offers a better balance between stability and flexibility.

from The Great Debate:

Be careful what you wish for on currencies

The rancorous argument about global payment imbalances and the yuan's valuation is exposing a surprising and dangerous economic illiteracy among policymakers and commentators.

Before pressing China to allow a maxi-revaluation of the yuan, western commentators need to think through the consequences carefully. The idea that devaluing the dollar (and by extension euro and yen) will cause payment imbalances to disappear and boost employment in the West with little or no impact on inflation and living standards is a pipe dream.

from Financial Regulatory Forum:

China hints at resumption of yuan appreciation

By Zhou Xin and Jason Subler
BEIJING, Nov 11 (Reuters) - China sent its clearest signal yet that it was ready to allow yuan appreciation after an 18-month hiatus, saying on Wednesday it would consider major currencies, not just the dollar, in guiding the exchange rate.

In its third-quarter monetary policy report, the People's Bank of China departed from well-worn language on keeping the yuan "basically stable at a reasonable and balanced level". It hinted instead at a shift from an effective dollar peg that has been in place since the middle of last year.

"Following the principles of initiative, controllability and gradualism, with reference to international capital flows and changes in major currencies, we will improve the yuan exchange rate formation mechanism," the central bank said in a 46-page monetary policy report.

from Financial Regulatory Forum:

ANALYSIS-Emerging currency revaluation back on global table

By Mike Dolan
LONDON, Aug 5 (Reuters) - Western governments seem set on preventing currency appreciation snuffing out nascent economic recoveries, helping reignite bets on a devaluation of major currencies against those of the emerging economic giants.

And with the dollar weakening again, the push to convince China and the emerging economies to take a greater share of its depreciation may well be back on the table at the next G20 finance chiefs meeting in London on September 4 and 5.

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