I personally am more of a reserves watcher. Rather than recite my usual litany of complaints about some central bank policies , I’ll just follow the New Economist’s lead for a second time and link to the Roubini/ Atlig econoblog on China's peg. I tend to side more with Roubini than Altig (surprise, surprise) – though I still am not quite sure why Nouriel thinks China will do a step revaluation now (read Survived Sars) … there are other ways to get a bit of a revaluation if China so decides.
I do share Altig’s sense that not much has changed since last summer. At least so long as he is referring to the policy debate. China certainly has changed. The evidence that China is over-heating seems a quite a bit stronger. I wonder if China’s decision to scale back its sterilization last summer had something to do with the current bout of activity. China has indicated that it scaled back sterilization in part because it wanted to drive down domestic interest rates to deter speculation. But perhaps China was also worried that the small revaluation would slow the economy.
If China did want a bit of offsetting monetary stimulus, they may have gotten a bit more than they bargained. The line of the week comes from Stephen Roach – Morgan Stanley’s resident former bear.
Roach’s new found optimism (at least as much as is left) stemmed from confidence that central banks were taking imbalances seriously. But he doesn’t seem to have much confidence in the PBoC’s ability to reign China’s economy. Roach:
Most believe the People’s Bank of China will lead the charge in acting to slow the Chinese economy. I don’t.
The PBoC’s influence is limited, whether by political constraints that keep it from using the policy tools it has (interest rates, exchange rates), limits on the effectiveness of those tools in China’s unique context or a bit of both.
Right now, Roach seems to have more confidence in the central planners than the central bankers.
Its [China’s] central planners are likely to be more important than its central bankers in regaining control over a runaway economy.
That is a good line. Roach is also right: it is pretty clear that China’s economy isn’t a classic market economy. Not yet. And somewhere there is a deep irony in the notion that the chief economist of an icon of American Capitalism seems to be calling for a bit more (effective) central planning …