Bank of China vs. Soros and Wild Rumors: Yuan Appreciation Will Not Help Against Inflation

We track all currency ETFs live here. The Chinese currency ETFs we use is CYB.

Throwing cold weather on Bill Soros comments and wide and wild spread rumors last week about a sudden major Yuan appreciation, the Bank of China says that the revaluation of the yuan will not be an effective weapon against inflation "but rather a consequence of growing inflationary pressure".

In fact, today China's yuan fell by its daily limit against the U.S. dollar after several large import settlements led to a temporary spike in demand for the U.S. currency.

The comments were made by Deng Lei, deputy general manager of the treasury department of the Shanghai branch, Bank of China.

"I do not see much of a correlation between the two, as the rocketing prices of international commodities have contributed to the current inflation rate," "For instance, if the yuan appreciates by 5 percent and the price of crude oil surges by 10 percent, the domestic market still faces a 5 percent rise, which leaves the problem unsolved," (China Daily today)

Billionaire investor George Soros said earlier this month that the appreciation of the currency as a way of controlling inflation would be "advantageous".

Previous experience in some South American countries has indicated that the rise of a currency might thwart its competitiveness in exporting goods, which can lead to the collapse of the national economy"

China this month registered its first quarterly trade deficit in seven years, reflecting the faster-than-anticipated rising prices of imported commodities.


The yuan's appreciation "will be no help in rebalancing global recovery, as it would depress US consumer demand and would not shrink the US trade deficit",


The yuan has gained 4.6 percent against the US dollar in the past two years, the second-smallest gain of 10 Asian currencies tracked by Bloomberg.

"Domestic demand, notably rising labor costs, has helped to cause the high inflation but it is inevitable during economic transitions,"  "Tightening monetary measures, therefore, will assist in managing the inflationary pressure caused by domestic stimulation plans after the financial crisis."

Deng also forecast the possibility of another rate increase in a "steady and gradual manner", he emphasized the moves "cannot continue indefinitely as it brings new pressure on exchange rate hikes that deviate from the idea of curbing liquidity".