Yuan Rises a Tad

The Yuan traded at a new high, because China raised their interest rates again.

China’s yuan traded near its highest level in 17 years after the central bank raised interest rates for the third time since mid-October, spurring speculation policy makers will permit more gains to counter inflation.

The benchmark one-year lending rate was raised to 6.06 percent from 5.81 percent from today, the People’s Bank of China said yesterday. The one-year deposit rate was increased to 3 percent from 2.75 percent. The monetary authority set the reference rate for yuan trading at 6.5850 per dollar, the strongest level since a dollar peg was ended in July 2005.

Bloomberg's claim the dollar peg ended is pretty much a joke. China is not floating their currency, that's just a re-peg, allowed to fluctuate within a small limit.

From Xinhuanet:

On China's foreign exchange spot market, the yuan can rise or fall 0.5 percent from the central parity rate each trading day.

The central parity rate of the RMB against the U.S. dollar is based on a weighted average of prices before the opening of the market each business day.

This will help reduce imports from China, Asia a tad, but every bit helps.

Amazingly enough, many in the press do not realize other countries are pegged to the Yuan. Economist Dean Baker:

China Allows the Yuan to Rise

Shockers of all shockers, China let the yuan rise against the dollar.

China's central bank, after setting the mid-point for Monday's trading range, let the yuan rise 0.42 percent to 6.7976 per dollar—both the biggest daily gain and the highest close since China revalued the currency and introduced a managed float regime in 2005.

At one point, the yuan was up as much as 0.47 percent from the day's mid-point—just shy of the currency's 0.5 percent limit, which had rarely been tested in practice in the past.

Traders said the lack of intervention by the central bank suggested it wanted the market to drive intraday trade and so underline its weekend pledge.

But it also showed it had ultimate control by setting the reference rate, around which the yuan can trade, at the same level as Friday's fixing.

While today we actually saw a rise in the yuan, don't be so convinced this was a real policy change. China may simply be trying to get international pressure off their banks in order to not be labeled a currency manipulator. China has a long way to go to let the currency re-evaluate to it's true value. Current estimates say the Renminbi is undervalued by 23% to 40%.

China "Pledges" to "Reform" their Currency

China is making front page news with a pledge to reform their currency.

Right. The specifics are clearly lacking and worse, China rejects a one time re-evaluation.

The decision to “increase the renminbi’s exchange-rate flexibility” was made after the economy improved, the central bank said in a statement on its website, without indicating a time-frame for the change. It ruled out a one-off revaluation, saying there is no basis for “large-scale appreciation,” and kept the yuan’s 0.5 percent daily trading band unchanged.

“The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability,” the People’s Bank of China said in the statement. “It is desirable to proceed further with reform of the renminbi exchange-rate regime and increase the renminbi exchange-rate flexibility.”

The Renminbi is considered undervalued from 23% to 40%. This appears to be a non-announcement announcement from China before the G-20 meeting in order to get the pressure off for China's currency manipulation.

Just yesterday China claimed their currency manipulation was not up for discussion at the G-20 meeting.

The actual announcement is here. China claims their currency peg helped with the financial crisis. Uh huh. From the press release:

IMF - "Essential" China Allow Currency to Appreciate

Currencies of a number of emerging Asian economies remain undervalued, substantially in the case of the renminbi,” the IMF said in the report. Renminbi is a name for China’s currency, a denomination of which is the yuan. It’s essential for China to address excess demand pressures by reining in credit growth and allowing exchange-rate appreciation - IMF

The above is quoted by Bloomberg in the IMF press conference on their World Economic Outlook report.

Additionally the IMF said debt laden countries should let their currencies depreciate:

China to "slightly" increase currency value, token move to claim the U.S. did somethin' while doing nothin'

What a surprise. Here comes the ineffectual response on Chinese currency manipulation so the U.S. can pass the buck again.

The Chinese government is preparing to announce in coming days that it will allow its currency to strengthen slightly and vary more from day to day, a move being taken for domestic policy reasons in China but likely to please the Obama administration, people with knowledge of the emerging consensus in Beijing said on Thursday.

The article goes on to claim this is a political windfall for the Obama administration.

But, of course any annoucement could be delayed:

Treasury Delays China Currency ManipulationReport

The U.S. Treasury has delayed a currency manipulation report on China according to the New York Times. The report was due out mid-April.

For now, the United States is setting aside the most potentially divisive issue, deferring a decision on whether to accuse China of manipulating its currency, the renminbi, until well after Mr. Hu’s visit, according to a senior administration official. That decision, the official said, reflects a judgment that threatening China is not the best way to persuade it to allow the renminbi to appreciate against the dollar.

Many economists expect China to act on its own to loosen the tight link between the renminbi and the dollar — a policy that keeps the currency’s value depressed and makes Chinese exports more competitive in global markets.

China CEOs are all for a Floating Yuan!

This is an astounding headline. According to Bloomberg, Chinese Business Executives are meeting right now with President Obama and are for increasing the value of Chinese currency in relation to the U.S. dollar.

Chinese executives are joining U.S. President Barack Obama in backing a stronger yuan, even as Premier Wen Jiabao says the currency isn’t undervalued.

Yang Yuanqing, chief executive officer of Beijing-based computer maker Lenovo Group Ltd., said gains would boost consumers’ purchasing power. Qin Xiao, chairman of China Merchants Bank Co., said an end to the yuan’s 20-month peg to the dollar would let lenders set market-based interest rates. Chen Daifu, chairman of Hunan Lengshuijiang Iron & Steel Group Co., said a stronger currency would cut import costs.

Goldman Sachs predicts 5% Yuan evaluation increase

Goldman Sachs is predicting China will raise by 5% it's currency. I think we've seen these reports before, but because China's currency manipulation is such a major factor in the U.S. trade deficit, this is worth a read.

Goldman Sachs Group Inc. Chief Economist Jim O’Neill said China may be poised to let its currency strengthen as much as 5 percent to slow the world’s fastest growing major economy.

“I have a strong opinion that they’re close to moving the exchange rate,” O’Neill said in a telephone interview from London after China’s central bank told lenders on Feb. 12 to set aside larger reserves. “Something’s brewing. It could happen anytime.”

Is Obama going to grow a pair & demand China float their currency?

Is this more great sounding rhetoric or is Obama going to get serious about China and their currency manipulation?

The administration has told Chinese officials that currency policy will be high on its agenda this year for economic talks with China, a senior official said on Wednesday. The White House is also weighing whether to designate China as a country that manipulates its currency, when the Treasury Department issues its semiannual report on foreign currencies in April.

President Obama signaled the tougher line on Wednesday, telling Democratic senators that the United States needed “to make sure our goods are not artificially inflated in price and their goods are not artificially deflated in price; that puts us at a huge competitive disadvantage.”