Re: Jim Rogers Buying the Yuan
[ QUOTE ]
[ QUOTE ]
If China inflation stayed high enough, long enough, the underlying - and unknown due to lack of a free spot market - value of the Yuan would be slowly declining in the background against the dollar
[/ QUOTE ]
i have to disagree here. i think i know what your'e trying to say...but if i get it wrong, correct me.
high inflation with high growth in china is exactly the conditions that would cause further revaluations of the yuan (china doesn't want run-away inflation and have shown a desire to raise their deposit rate to 3.6% in teh past few months). if inflation stays high enough, long enough, the pressure to revalue in order to be able to execute monetary policy decisions i think will be the main driver and thus high inflation will lead to higher CNY/USD rather than lower as you stated (i think() above.
Barron
[/ QUOTE ]
I think it's the Interest-Inflation rates differential that's the key. Even with strong growth, if that differential gets large negative the currency will weaken. What is China's policy on this? How will they prioritize Growth vs Yuan? Right now that differential is positive in the U.S. and negative in China. By all rights, based on this factor, the background value of the Yuan vs. Dollar should be weakening as we speak. If it were we wouldn't see it in spot prices because China has the Yuan pegged below its real value against the dollar. China's policy might be to prioritize growth and allow a background devaluation of the Yuan, at least as long as it stays above the peg.
On the other hand, there's the Balance of Trade factor.
PairTheBoard
|