Obama's Tiptoe Thru the Tulips with China

In the wake of Paul Krugman and members of Congress wanting to label China a currency manipulator, those expecting fireworks at Monday's meeting between president Obama and Chinese president Hu Jintao must have been disappointed.

Certainly, cooler head prevailed, and that is a good thing. However, nothing much was accomplished either as noted by Bloomberg in Hu Says China Follows Own Path on Yuan as Obama Seeks Revalue.

President Barack Obama urged China to move toward a “more market-oriented exchange rate” for its currency, and President Hu Jintao told Obama his country would follow its own path toward revaluing the yuan.

Hu said any such action by China must be “based on its own economic and social-development needs,” China’s official Xinhua news agency reported.

The leaders’ remarks left each country room to maneuver, and didn’t foreclose action toward changing the yuan’s almost two-year peg to the dollar, said Kenneth Lieberthal, who was the top Asia expert at the National Security Council under President Bill Clinton.

China To Float The Yuan?

A Bloomberg survey says China to Float Yuan by June 30, Shun One-Off Jump

China may allow the yuan to appreciate by June 30 to curb inflation while avoiding a one- time jump in value that might curb exports, a survey of analysts showed.

Twelve of 19 respondents surveyed by Bloomberg said the central bank will allow the currency to float more freely this quarter, five expect it to happen by Sept. 30, and the rest expect the move by year-end. Eleven see no one-off revaluation, while eight forecast an immediate gain of between 0.5 percent and 5 percent. Fifteen predict a wider daily trading range.

Allowing the currency to strengthen would temper inflation after a 17 percent surge in import prices in March from a year earlier helped cause China’s first trade deficit since 2004. A “slow” appreciation would give manufacturers enough time to adjust their businesses, which slumped during the global recession, according to Oversea-Chinese Banking Corp.

The title in the preceding link is rather misleading. There is a huge difference between freely floating the Yuan and widening the band by a bit.

However, for the time being, and for whatever reasons, cooler heads have prevailed and that is actually a good thing. Branding China a currency manipulator would not have been a smart thing to do. No one wins in huge trade wars. Smoot-Hawley should be proof enough.

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