In an opinion piece titled “Toying with yuan won’t help US”, Fan Gang warned a revaluation of the currency would not by itself resolve economic problems in the United States such as high unemployment and a massive trade deficit.

Fan, the only academic member of the People’s Bank of China’s monetary policy committee, also pointed out that Beijing has domestic factors to consider, such as the need to create jobs in the world’s number three economy.

“China may resume a managed float of its exchange rate, particularly if the uncertainty of the overall post-crisis economic situation diminishes,” Fan wrote in a commentary in the English-language China Daily.

Fan is also an economics professor at Beijing University and director of China’s National Economic Research Institute.

The growing clamour over the yuan has highlighted differences within China on exchange rate policy.

While the central bank has signalled a more flexible exchange rate could be in the offing, the commerce ministry has been strident in its defence of the current policy.

While Fan acknowledged that most economists believed the yuan was too low, he warned that a sudden adjustment could hurt Chinese exporters and increase inflationary pressures in the United States.

Source : Konaxis

[ By Chris, Devonshire-Ellis, Senior Partner, Dezan Shira & Associates ]

With the West likely to fall into recession during the next couple of years, now is a good time to evaluate purchasing polices from emerging markets as the household pinch on buying products extends up the supply chain to the source of product?in this case, China (although this perspective can also be applied to other currencies such as those in Mexico, Brazil, India, Russia).

Purchasing power parity is the art of recognizing the true value of the local currency, and applying that to buying techniques. Let?s take for example, the U.S. dollar and the RMB. According to conventional wisdom and current exchange rates, the U.S. dollar is valued at US$1 = RMB6.8. In fact, the two currencies are rather more similar than is commonly acknowledged.

Both currencies have the unit of 100 as their largest denomination. Both feature pictures of deceased leaders. Both are the most sought after valued note in their respective nations. Yet, according to the current exchange rates, the RMB100 is only worth about US$15 (give or take a few cents). Yet purchasing power parity holds that in China, the RMB100 note will buy the same quantity of goods or services as the US$100 will in America; in which case, the two notes are essentially identical in their respective domains concerning their ability to purchase.

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