Finally! That source of international angst and condemnation, that much debated, much awaited Chinese currency revaluation is coming!
It's good news for financial markets. Positive speculation abound after the People's Bank of China (PBOC) posted the "Further Reform the RMB Exchange Rate Regime and Enhance the RMB Exchange Rate Flexibility" statement on its website over the weekend.
You could almost smell the aroma of optimism in the air. Toot those vuvuzelas! China is revaluing the yuan! Everyone rejoice!
"Experts" have all come out of the woodwork to sing their praises. Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics in Washington, commented that the post indicates that the PBOC believes that the "worst of the financial crisis is over, China is growing very strongly, that this is an auspicious time to go back to the policy that had initially been announced."
Stephen Roach, Chairman of Morgan Stanley Asia, echoed Lardy's sentiment. "This move is a vote of confidence in the global recovery."
And then there's Goldman Sach's chief global economist Jim O'Neill's analysis of the PBOC statement. "The Chinese are increasingly confident they can make this adjustment to a domestic-driven economy rather than the one relying on exporting low-value-added stuff to the rest of the world." And, "Markets are going to like" Beijing's announcement.
Yes, it's all good Virginia. Because as IMF Managing Director Dominique Strauss-Kahn explains, deciding to give its currency flexibility "will help increase Chinese household income and provide the incentives necessary to reorient investment toward industries that serve the Chinese consumer," and could also damp inflation, IMF's second in command John Lipsky adds.
But what did the PBOC say exactly? According to its English translation, the post reads:
"The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility.
In further proceeding with reform of the RMB exchange rate regime, continued emphasis would be placed to reflecting market supply and demand with reference to a basket of currencies. The exchange rate floating bands will remain the same as previously announced in the inter-bank foreign exchange market."
This is not the full text of the supposedly "currency revaluation" announcement. But you haven't missed any significant wordings. For the important ones are really missing - there's no when, there's no how much.
Even a first grader would ask when and how much when promised something. Why aren't the "experts" asking these questions?
This makes me think that Beijing might be up to its old trick again. The trick of telling people what they want to hear when the spotlight is shining in its direction.
You can't blame a man for being a sceptic … it may just be a coincidence that the PBOC announced that it's pondering revaluing its currency a week before the G-20 meets in Toronto on 26-27 June. Undoubtedly, on the G-20 agenda would be the current imbroglio surrounding the growing budget deficits in Europe and other western economies and their trade imbalances.
Equilibrium dictates that where there's a deficit in one country, it must be made up for by a surplus in another. Surplus country? That's China isn't it? What's one of the reasons for its surplus? It's undervalued currency.
For Beijing, "a stitch in time saves nine."
