China to consider hot money policies: report

BEIJING Sun Nov 14, 2010 5:16am EST

Yuan banknotes are seen in this picture illustration taken in Beijing November 1, 2010. REUTERS/Petar Kujundzic

Yuan banknotes are seen in this picture illustration taken in Beijing November 1, 2010.

Credit: Reuters/Petar Kujundzic

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BEIJING (Reuters) - China may deploy a mixture of policies to fend off hot money, an official paper cited a central bank executive as saying at the weekend, amid worries that the United States' policies could create unwelcome flows of capital toward China.

Ma Delun, a deputy governor of central bank the People's Bank of China (PBOC) said such a policy kit would include reserve requirement adjustment, management of foreign exchange positions, and open market operations, expanding on an earlier remark by the PBOC governor.

"The 'pool' mentioned by Governor Zhou Xiaochuan does not refer to a specific market, but an array of policies," Ma was quoted as saying by the Shanghai Securities News on Saturday.

Earlier this month, Zhou said China's existing foreign exchange controls were able to prevent irregular capital inflows, and proposed establishing a "pool" that could help lock and release capital as required.

With the United States weakening the dollar with a second round of quantitative easing, worries are mounting that much of that cash may end up overseas, putting pressure on countries including China to find ways of fending off unwanted capital inflows.

Ma also said the inflation rate that reached a 25-month high in October was within expectations, and the central bank would improve the focus of its monetary policy in future to keep inflation in check.

The PBOC launched fresh tightening measures this week to fight excessive liquidity, including a rise in the reserve ratio for all banks on top of a punitive hike for selected banks.

Ma said the increase in required reserves was intended to reduce money supply to the real economy.

China must continue its exchange rate reform efforts, and allow businesses to adapt by conducting reform gradually, he added.

The yuan's steady ascent picked up steam recently as China stepped up monetary tightening to fight capital inflows. On Friday, spot yuan versus the dollar was up around 2.85 percent since its depegging in mid-June.

(Reporting by Aileen Wang; Editing by Daniel Magnowski)

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Comments (4)
FirstAdvisor wrote:
China is already well-protected with financial firewalls around its borders, but all other developing nations will need to pass legistation quickly to defend themselves from this latest bombardment of economic warfare from the USA. Naturally, that will harm and injure their trade with all other nations of the world, causing and creating further damage to the global financial system. The Americans seems determined to throw themselves off the cliff of history to their own destruction. In future history books, even American books, there will be no possibility of hiding what national people were to blame for the war over the world’s financial system, a war the USA can no longer conceivably win.

Nov 14, 2010 5:53am EST  --  Report as abuse
HWO wrote:

I fully agree with you. Somehow, every other non American seem to see this impending downfall of the US clearer than the Obama Administration. QE is only going to mean that things are going to be getting more expensive in the US as USdollar weakens. The emerging/developing countries sense this explicitly and as such we see them dismissing US suggestion of trade balance and currency revaluation with impunity. US self denial of economic deflation is sad as I think of my many friends in the US who have been lied to by their president.

Nov 14, 2010 7:19am EST  --  Report as abuse
befair wrote:
China’s policy will make it harder to dump our dollars before they are devalued. Gold is scary high so maybe invest in food commodities?

Note the first QE2 bond purchase was a failure as the prices actually fell and interest rates rose. No one is buying dollar debt except the Federal Reserve. How high will the interest rates jump when QE2 ends?

Nov 14, 2010 9:43am EST  --  Report as abuse
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