Tags: Bernanke | Bet | Yuan | Rise | china | us | economy

Bernanke’s Bet Could Mean Quick Yuan Rise

Friday, 22 Apr 2011 09:11 AM

U.S. Federal Reserve Chairman Ben Bernanke’s bid to level the currency playing field via global inflation seems to be gaining traction.

Chinese leaders are now debating a revaluation of the yuan, something years of browbeating from U.S. politicians failed to accomplish.

"We will further increase the (yuan's) flexibility according to the market," Premier Wen Jiabao said a month ago and recently repeated, according to a Wall Street Journal report. "But we must also keep in mind that this kind of reform is gradual, because it affects companies and employment."

Meanwhile, Chinese economists are testing the idea of a sharp, one-time revaluation, floating the concept in recent blog posts, the newspaper reported. Consumer prices there rose by 5.4 percent in March compared to a year earlier, the fastest rate in three years, at least according to official figures.

China is suffering, as are many developing countries, from the rise in prices for food and energy. While poor weather and military conflicts play a role, the Fed’s drive to keep Treasurys low via massive bond purchases also has pushed speculators into the commodities (and stock) markets on a bet that a potential flood of new dollars will inevitably create a U.S. hyperinflationary episode.

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Ben Bernanke (Getty photo)
Bernanke dismissed criticism on that front recently, citing the “tools” that foreign nations have to control their own inflation problems, namely, allowing their currencies to appreciate. He maintains the stance that the Fed can rein in still-low U.S. inflation before it roars out of control.

The yuan has jumped against the dollar since it was depegged in Jun 2010, up 4.69 percent since then. It is up by more than 1 percent in 2011. The dollar, meanwhile, has plunged against nearly every asset.

If China lets the yuan rise, of course, its exports become less competitive and its own growth slows. Given the enormous amount of liquidity the government there unleashed into its own economy during the crisis, a cooling domestic economy might be a reasonable choice — presuming there is no backlash at home.

“China’s economy is overheating now, but, over time, its current overinvestment will prove deflationary both domestically and globally,” warns NYU professor and economist Nouriel Roubini, in an online column for Project Syndicate.

“Once increasing fixed investment becomes impossible — most likely after 2013 — China is poised for a sharp slowdown,” Roubini said.

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U.S. Federal Reserve Chairman Ben Bernanke s bid to level the currency playing field via global inflation seems to be gaining traction. Chinese leaders are now debating a revaluation of the yuan, something years of browbeating from U.S. politicians failed to accomplish. ...
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2011-11-22
 

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