Gone Fishing

I am going to be away from the office for the next ten days or so for a conference in China. That probably explains why China has figured so prominently in my recent posts.

I do not expect to post on the blog, though I may check in from time to time.

It should be interesting to hear how the Chinese themselves are evaluating their policy options. After all, if China decide to change the peg, it will be because China has come to the conclusion that the peg no longer serves China’s interests. It presumably has not escaped China’s notice, for example, that oil, in renminbi terms, is quite expensive right now! And at least the technocrats are aware how difficult it is to sterilize a $200 billion (and perhaps more this year) annual increase in reserves, and the risk that the resulting surge in the money supply will lead to domestic financial troubles, of various kinds. The future losses on the PBOC’s large dollar holdings will likely be far larger, relative to China’s GDP, than Japan’s current unrealized loss.

On the other hand, China’s exports are growing almost as fast as its reserves ...