foreign exchange

“Chinese revaluation is not in the US interest.” This is one of the major conclusions from a collection of short essays on the Sino-US currency dispute (eBook). Other conclusions are that a revaluation is in China’s interest, and that the size of the RMB undervaluation is between 2.5 and 27.5 per cent.

The conclusions back up research performed by PwC for Money Supply on Friday. They found that while a renminbi appreciation would reduce the US trade deficit, the effects would not flow through to GDP and would, at any rate, be short-lived.

The zloty is too high, even though recent intervention by the central bank has helped to weaken the currency to levels last seen a month ago. So says Polish deputy finance minister Ludwik Kotecki.

“At this stage of the recovery, the zloty is probably too strong and for sure further appreciation of the zloty should be avoided,” Mr Kotecki told Bloomberg in an interview on April 17 in Madrid. “The recovery is not well grounded and risks still exist. Too strong a zloty would be negative.” He declined to speculate on what the optimal exchange rate would be for Poland’s economy. 

The Singaporean dollar will be allowed gradually to appreciate following a one-off strengthening today that a Bloomberg source estimates at about 0.6 per cent. At the same time, the Trade and Industry ministry raised its forecast for this year’s growth to 7-9 per cent, from 4.5-6.5 per cent.

The local dollar will trade in a new, stronger band, the midpoint of which is roughly the top of the previous band. There will be no change to the width of the band. The dollar is measured against a trade-weighted index of large international currencies, in proprortions held secret by the country’s Monetary Authority. 

Sri Lanka has shelved plans to allow the free flow of foreign currency into and out of the country following political upset over the plan. Sri Lankan central bank governor Ajith Nivard Cabraal said over the weekend that the plans were now on hold until after the Presidential election, scheduled for January 26, 2010.

The central bank, which yesterday kept its rates on hold, said on January 4 that it would allow the free flow of foreign exchange, so anyone could send money in or out, or set up foreign bank accounts. 

Commodities inflation could rise rapidly if China follows the advice of one of its central bank officials, who recommends spending forex reserves on strategic resources such as oil. The move would further China’s diversification from the dollar.

Many emerging economies, such as Indonesia, list commodity inflation as a principal risk to continued economic recovery.