Thursday, December 4, 2008

Yuan Watch : Let's make a deal!

Reading between the lines of the articles below, it would appear that the Chinese are threatening to depreciate the yuan in order to protect their investments (treasuries and agencies) in the face of the Federales monetization program.

No other explanation makes sense.

The Chinese can't depreciate the currency enough to have a dramatic effect on exports, as acknowledged by the Chinese Central Bank governor.

What can Zirpmeister Ben and Timmy G do to assuage their Chinese counterpart to continue yuan appreciation so as not to set off additional asian devaluations and demand destruction?

What guarantees will be given in order to protect Chinese investments?

According to the World Bank the Chinese will still have dollar reserves that they need to dispose of in 2009 due to decreasing terms of trade (cheaper inputs i.e.,half-off sale on all commodities.)

Continued yuan appreciation with guarantees to the Chinese that offset currency risk of our sovereign debt would seem to be the desired outcome.

A currency swap with appreciating reserves tied to the depreciating value of the greenback? Maybe Goldie can share some of the Treasury CDS.

Don't laugh ... imagine how silly any of today's headlines would have been a year ago.

Connect the dots as you see fit with the articles below.

Thu Dec 4, 2008 2:17am EST
BEIJING, Dec 4 (Reuters) - Zhou Xiaochuan, governor of the People's Bank of China, flew to the United States on Thursday for an unscheduled meeting, a central bank official said.

By Li Yanping and Dune Lawrence
Dec. 4 (Bloomberg)
The comments in Beijing today by Vice Premier Wang Qishan and central bank Governor Zhou Xiaochuan came as U.S. Treasury Secretary Henry Paulson praised China’s “responsible role” in combating the crisis.
“We hope that the U.S. can take all necessary measures to stabilize its financial markets and economy as soon as possible and ensure the safety of China’s assets and investments in the U.S.,” Wang said. “To work together to tackle the financial crisis is the most pressing task that we are facing.”

by Joe McDonald
Dec 4th -AP

"The Chinese continued to reinforce to us that they were committed to continued reform, and by that I mean continued appreciation (of the yuan) over time," said an American official who briefed reporters on condition he not be identified further.
The American officials said they did not know details of what Wang meant by protecting Chinese investments.
(12-04 17:19)
China needs to be prepared for the worst case scenario amid a deepening global economic crisis, central bank governor Zhou Xiaochuan said.
Zhou also urged the US government to take more measures if needed to help stabilize the global economy and financial markets, Jin Qi, head of the international department of the Peoples Bank of China said in Beijing after a meeting of the China-US Strategic Economic Dialogue.
China's government should take timely, effective and pre-emptive measures, analyze the progress, evolution and outlook of the crisis and be especially prepared for a worst- case scenario, Jin quoted the central bank governor as telling the meeting .

By Wang Bo (China Daily)
Updated: 2008-12-02 16:00
The governor of the People's Bank of China, Zhou Xiaochuan said earlier that he wouldn't rule out the possibility of the renminbi depreciating.
"The moderate depreciation of the Chinese currency is conducive to the domestic economy," said Guo Tianyong, director of the Research Center of the Chinese Banking Industry, Central University of Finance and Economics.
But he also pointed out that as overseas demand has declined substantially, renminbi depreciation is not "quite an effective tool" to spur export growth.

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