William Pesek: Is China preparing for currency war

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By William Pesek
Bloomberg News
Friday, February 6, 2015

China has entered the global monetary-easing fray, along with more than a dozen other economies, after its central bank surprised investors by cutting reserve requirements 50 basis points to spur lending and combat deflation. But Beijing may be raring for an even bigger and more perilous fight -- in the currency markets.

Reducing the amount of cash that banks are required to set aside (to 19.5 percent), as China has just done, is largely symbolic -- a don't-panic-we're-on-top-of-things reassurance to international markets and local property developers. Still, the move is also an inflection point. China is in all likelihood about to loosen monetary policy considerably to support economic growth. If global conditions worsen, China's one-year lending rate, now at 5.6 percent, could head toward zero.

At the same time, something else is afoot in Beijing could have even greater global impact. The central bank is cooking up measures to widen the band in which its currency trades. People's Bank of China officials say it's about limiting volatility as capital zooms in and out of the economy. Let's call it what it really is: the first step toward yuan depreciation and currency war. ...

... For the remainder of the report:

http://www.bloombergview.com/articles/2015-02-06/is-china-preparing-for-...



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