monthly viewpoints - february 2011
TRANSCRIPT
February 2011 Viewpoints
China’s Renminbi (RMB) pegged exchange rate to the dollar – current predicamentChina’s Renminbi (RMB) pegged exchange rate to the dollar – current predicament
QE2WeakensDollar
StrengthensRMB
PBOCcreates more
RMB toPBOC’s peg intervention
PBOC required totighten more
StrengthensRMB
QE2 RMB to buy more $$$
creates credit bubble risk
“China must continually “The peg has had a range of consequences for the Chinese Possible ways China buy dollars on the open market. In order to buy dollars the PBOC (People’s Bank of China) must print its own currency. In essence, China is
economy. One of these has been an over allocation of resources to China’s export industry and a corresponding lack of investment and development of its non‐tradable sectors. It has also reduced the Chinese government’s control over its monetary policy because increases in its interest rates would only increase demand for the RMB,
could exit from the peg• allow gradual
appreciation without an initial revaluation• a modest initial l i f ll d badopting the Fed’s
expansionary monetary policy. The big problem is that unlike the US, the newly printed RMB are not exported, but remains in
yforcing China to supply even more RMB to maintain the peg with the dollar. The need to supply RMB to maintain the peg has also contributed to inflationary pressures in China, which is pushing 5%”
Joshua MeltzerThe Brookings Institute
revaluation followed by a gradual appreciation
• a large initial revaluation to be
followed by gradual appreciationexported, but remains in
China bidding up prices and inflation”
Peter SchiffEuro Pacific Capital Inc.
The Brookings Institute appreciation
Through Articles of Agreement VIII, the IMF has a mandate to monitor and assess the appropriateness
of a member country’s
I believe that the odds of China pulling off a soft landing are slim for two reasons 1) China’s policy tools are crude and 2) in hybrid command/market‐driven economies, policy is difficult to implement.
A. Gary Schilling
Views presented are as of February 20, 2011 and are subject to change based on market conditions and other factors. These views and for informative considerations and should not be construed as a recommendation, either expressed or implied. Past performance is no guarantee for future results.
of a member country s exchange rate practice.
A. Gary SchillingA. Gary Schilling & Co. & Forbes Columnist