A Post-Olympics Currency Revaluation in China?

At Bloomberg, Andy Mukherjee writes:

Can China use a stronger currency to tame the intolerable 23 percent pace at which its food prices rose in February from a year earlier? It can, but only if the appreciation in the yuan takes the form of a large, one-off revaluation.

The current regime of fairly rapid appreciation is counterproductive because it ``will only encourage hot money flows,'' Michael Pettis, a Peking University professor of finance, says on his Web log.

A revaluation in the Chinese currency could -- apart from helping China to rein in prices -- also provide an opportunity for other countries in the region to tame inflation.

With export competitiveness as less of a constraint, Asian nations would rather let their currencies appreciate than raise interest rates in an environment of slowing global growth.

Of course, anything like, say, a 20 percent revaluation in the yuan could badly spook already jittery financial markets.

So perhaps the best time to announce it would be just after the Olympics -- as a kind of return gift to the participating nations. By then, of course, there's a chance that it may not even be needed.

To read more:

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_mukherjee&sid=aVeDbD9cKYxQ