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Wednesday, July 20, 2005 12:23 AM


China Calls US's Bluff


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The Chinese Central Bank called the US Tariff/currency manipulator bluff today with this message
China to keep RMB exchange rate basically stable.

China's central bank said Tuesday it will continue to keep the exchange rate of Renminbi, China's currency, basically stable at a reasonable and balanced level in the second half of this year.

In a press release issued after a meeting by heads of the bank and its provincial branches, the bank said it is one of its major tasks in the six months to deepen the reform of its foreign exchange administrative system, and push forward the reform of RMB exchange rate mechanism and keep the RMB exchange rate basically stable at a reasonable and balanced level.


Many were betting on a repeg by Autumn 2004, then January 2005. January became June as a trader I generally trust "guaranteed" me it would happen. oops. Then the bets shifted to August. I would say the already poor odds of a RMB repeg by August have likely gone out the window. Eventually China will float, but it will be at a time of their choosing not ours, and when they do, we might not care for the result either.

Note: if enough hot money flees China soon enough possibly we see some movement, I just doubt this is the time. At some point I will likely be wrong but it sure seems to me the smart money has been betting against it.

In the meantime that money sitting in China has to be practically burning a hole in someone's pocket. US 90 day interest rates are close to 3.25% now. That money has been sitting there doing nothing rather than collecting interest in the US. I see no reason why China can not outlast the US on this issue.

By the way, where are all the US dollar bears warning China to repeg before it's too late?

Here is the bottom line:
If China holds pat, we may soon find out just how stupid the US Congress is.
If the US imposes 27.5% tariffs, they will prove to be even dumber than I thought.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

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