Ambrose Evans-Pritchard: China quietly joins Asia's currency wars to avert deflation

Section:

By Ambrose Evans-Pritchard
The Telegraph, London
Monday, December 22, 2104

China has for the first time warned openly about the excessive strength of the Chinese yuan, a sign that the country may be shifting its exchange rate policy as deflation takes hold and currencies slide across Asia.

Yi Gang, the deputy governor of the People's Bank of China, said the yuan's rise had been "very fast" over the past year as it surges in tandem with the US dollar, making it the world's second strongest currency.

... Dispatch continues below ...



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China's real effective exchange rate has risen for six months in a row, tightening the screws on struggling exporters with wafer-thin margins. It rose 2.3 percent in trade-weighted terms in November alone as countries devalue on all sides, leaving China exposed like a sore thumb. The effect is to tighten China's monetary conditions into the downturn.

The country has quietly joined Asia's escalating currency wars, steering the yuan down by 2 percent against the dollar since early November. This looks increasingly like a move to protect itself against Japan's dramatic devaluation and against weakening currencies in Korea and other key Asian states. ...

... For the remainder of the commentary:

http://www.telegraph.co.uk/finance/economics/11309243/China-quietly-join...

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