China will let yuan weaken if exports falter

[Samen]

Export-driven China will let the yuan weaken against the dollar if overseas shipments falter significantly, a central bank adviser was quoted as saying Wednesday.

The comments by Zhou Qiren, published in the Japanese newspaper Asahi Shimbun amid US pressure to let the yuan strengthen
http://economictimes.indiatimes.com/...ow/6195567.cms

[Ross]

Good find ....Thanks for that Samen

Let the currency wars begin .

"The exchange rate of the currency ( Yuan ) will decline if it
becomes necessary to support exports,"

Wow! it was obvious the Chinese must be hurting but to have
it said so clearly with no "ifs ", no "buts" , no weasel words .

Although he did refrain from adding "We will drive the currency
through the floor if that is what it takes to save our asses " .

Zhou, a member of the central bank's monetary policy committee,
also said policymakers should have moved sooner than last month to
loosen controls over the yuan exchange rate.

The days of the USD$ vs Yuan peg in the form we are familiar with
appear to be numbered .



From the above chart ...
The USD$ has depreciated against the Yuan .

It now takes fewer Yuan to buy an oz of gold ( Vs USD$ ) than it did
a month ago . That is Yuan appreciation Vs the USD$ !!!



From the above chart ..

The USD$ has appreciated VS a basket of currencies ( The kitco index )
and the Yuan has appreciated even more than the USD$ in the last 30 days .

In summary it appears that the market place is currently
driving the Yuan up in value Vs most other currencies .

[Ross]

Extract ( 21 July 2010 ) .........

China’s reliance on administrative credit controls and reserve requirements, rather than interest rate adjustments, in setting its monetary policy is becoming increasingly unsustainable. In H1 2010, the open-market operations of the People’s Bank of China (PBoC) exhibited wild swings, and quirks of the domestic financial system and shifts in global capital flows—not macroeconomic fundamentals—were to blame. With these trends likely to continue in the medium term, the PBoC’s monetary policy will remain stuck in the traffic caused by pileups in international[...]

http://www.roubini.com/analysis/125318.php

If Chinese interest rates are allowed to rise why would they hold lower yielding USA treasury paper ???????

[Sysiphus]

In summary it appears that the market place is currently
driving the Yuan up in value Vs most other currencies .

The value of the yuan will decline or rise as the Chinese MOF decides. It is not a free floating currency. The MOF has every interest in decreasing the value of the yuan to prop up Chinese exports, regardless of whether the world (and gold market) think it is undervalued. This will create a political firestorm in the U.S. and EU, but the Chinese have us by the nutsacks anyways so there is nothing we can really do about it.

If Chinese interest rates are allowed to rise why would they hold lower yielding USA treasury paper ???????

Most wealthy Chinese have most of their assets in offshore bank accounts, and they cannot buy Chinese paper via offshore accounts. Thus, the demand for Chinese paper is artificially low.

[Ross]

Good points Sysiphus .