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March 14, 2005
Is there a game theorist in the house? (China's exchange rate policy edition)
Read this:
BEIJING (Reuters) - China could spring a surprise on financial markets in deciding when and how it reforms the yuan, Premier Wen Jiabao said on Monday in comments seen as warning speculators trying to guess what the country might do.
"Our goal has been to let market supply and demand determine the exchange rate," Wen told a news briefing at the close of the annual session of parliament.
"We are carrying out such work now, and as for the timing and what measures will be adopted, this could be unexpected."
I like this part the best:
"The attitude by Beijing is they don't want to reward speculators," Claudio Piron, an Asian forex strategist with JP Morgan in Singapore, said of Wen's remarks.
"The only thing is, this statement itself is kind of going to bring speculators back into the market, so they've kind of contradicted themselves," Piron said.
The market moved a little...
Following Wen's remarks, the offshore non-deliverable yuan forwards market, used by speculators to bet on any change in the currency's value in the future, priced in a 4.8 percent appreciation in the yuan in one year, increasing from 4.6 percent priced in on Friday.
...but Andy Xie remains unimpressed.
Andy Xie, an economist with Morgan Stanley in Hong Kong, said China would not spring reforms any time soon, and that Wen's comments were no departure from Beijing's go-slow approach to currency changes.
"China's not in a position to move on the currency because the economy is not stable," Xie said. "The currency is the only anchor for the economy right now."
That would be my gut reaction too. (But maybe that's what they want us to think!)
Also, see this Bloomberg article, courtesy of Calculated Risk (a blog that I just came across recently but deserves your attention).
Are these stories connected? Stay tuned to find out!
Posted by William Polley at March 14, 2005 01:04 AM
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Comments
Nouriel Roubini had an interesting post in January "US-China "Balance of Financial Terror" Game. A Prisoners Dilemma Game: hard landing MAD or Chinese pre-emption as the likely solution?"
http://www.roubiniglobal.com/archives/2005/01/uschina_balance.html
And thanks for the nice comments!
Posted by: CalculatedRisk at March 14, 2005 11:54 PM