Globally Imbalanced

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Slowly but surely….

Eleven days ago I mentioned the number of increasing signs that a Yuan revaluation was imminent, along with the similarities to the buildup to the initial 2005 reval. The past few days have only stepped up this feeling of inevitability as Tim Geithner following the tactful decision to delay the currency manipulator report with a surprise visit to Beijing.

Accompanied by his trusty sidekick, the aptly named David Dollar, Geithner met with State Council members Wang Qishan and Dai Bingguo at the VIP terminal of the Beijing airport. Both of the Chinese officials are from the State Council and will be leading the upcoming Strategic & Economic Dialogue. It’s important to note that the US officials were given access to State Council members, who are generally above the politics of the PBoC and Commerce Ministry. The PBoC (People’s Bank of China) have appeared much more understanding of the need to revalue, while the Commerce Ministry, under the influence of the domestic export lobby, has been the most vocally resistant. Wang Qishan is one of the four highest ranking assistants to Hu Jintao, indicating that cooperation is coming from the very top on the Yuan issue.

Wang Qishan (center) talking hoops with Obama

I imagine we’ll continue to see this internal Chinese battle play out over the coming days or weeks before any concrete action is taken. Just hours after the meeting with the US Treasury, Yi Xiaozhun, a vice-minister in the Commerce Ministry, claimed, “the crisis is not yet over, and so an increase in the value of the yuan now would hurt China’s economy.”

Again, we’re seeing shades of 2005. There were constant mixed messages coming out of Beijing which led to very volatile USD/CNY trading (and consequently large fluctuation in all Asian currencies). There were ridiculous moments like when a State-run newspaper’s English version reported that a reval was imminent and there would be a 3% band, and then hours later a government statement was issued that the English story was in fact a mistranslation.

If you’re at all involved in these markets, it’s definitely time to get ready for some excitement. While the long term might be an inevitability, the coming months should be anything but calm.

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Filed under: Chinese Politics, US Politics, , ,

About Me

Former emerging markets currency trader in NYC for seven years, turned MBA student at INSEAD living in Singapore.