China's clever central bankers

China''s central bank is only partially sterilizing forex inflows, thus keeping interest rates low, inflation under control, and the currency peg stable, says Standard Chart economist Stephen Green.

Much has been said, including in FinanceAsia, about the inevitability of the revaluation of the peg. However, new research by Stephen Green, author of a forthcoming book on the mainland privatization process, indicates that the PBOC People's Bank of China is managing to balance the competing pressures bearing upon it to an extent that that the pressure for a big revaluation is not as great as many think.

Green estimates that despite the huge accumulation of China's foreign reserves, the central bank is not in fact sterilizing all the forex which is pouring into the country, on the back of a strong current account surplus from the weaker Yuan,...

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