As long-time readers know, I've been writing all along that it's only a matter of time until the renminbi replaces the USD as the world's "reserve currency". In that respect, I pay close attention to any news items which HINT about this progression.

Today Bloomberg reported that China's government has relaxed the "trading band" for the renminbi to the greatest degree since 2007 - and then it "explained" why China did this.

Regular readers know the procedure for dealing with this propaganda. We extract the FACT from the report (China's government relaxing currency-controls) and then we throw away the EXPLANATION - since the odds of the propaganda machine ever giving us the CORRECT explanation for any news item are slim to none.

So why did China's government REALLY do this? First we look at the CONSEQUENCE of this policy change: the renminbi will fall MORE SLOWLY versus the USD than it did previously. This suggests the REAL MOTIVE for the Chinese government (unlike the B.S. supplied by Bloomberg): it fears that the USD is about to go on another big SLIDE (meaning big INFLATION) - and thus by loosening the currency control it SHIELDS its people from this inflation (slightly).

In other words, since "inflation" is nothing but the speed at which paper is going to zero, by loosening its ties to the other plummeting paper China's currency will fall more slowly, meaning inflation will RISE more slowly.

To verify this theory/explanation we must play detective - i.e. look for clues. We have only been given one clue in this fact pattern: the last time China did this was in 20007.

What were the economic circumstances in 2007? The USD was just about to begin its biggest/fastest plunge in HISTORY, while commodity prices (and inflation) were about to begin their biggest spike since the 1970's.

How's that for a clue?

With more and more Fed-heads hinting at "more QE" we have further verification for this theory - since money-printing is the TRIGGER for these explosive waves of inflation (and currencies plummeting toward zero).

Note that this is about as good a "clue" as we precious metals holders will get that we are on the eve of ANOTHER big rally AND it would explain why the banksters have been so rapidly attempting to choke all life out of this sector: the more depressed it is when the next inflation-spike begins, the slower/lower prices will rise (at least that's what the banksters HOPE...).

This is why we must always be ACTIVE consumers of the news - PROCESSING everything we receive. Even ONE seemingly innocuous piece of news can lead us a long ways, once it is placed into proper context, and then analyzed CORRECTLY...




"China Doubles Yuan Trading Band in First Widening Since 2007"

www.bloomberg.com/news/2012-04-14/china-...ple-s-bank-says.html

China widened the yuan’s trading band for the first time since 2007, a move that may be intended to stem criticism from trading partners after expectations for gains in the currency diminished.

The increase to 1 percent from 0.5 percent will take effect April 16, the People’s Bank of China said on its website today. The previous broadening of the trading band, which is centered on a rate set daily by the central bank, was from 0.3 percent in May 2007.

The shift comes days before the International Monetary Fund and Group of 20 hold talks in Washington, forums used by finance chiefs to lobby China to let the yuan gain. Expectations for a stronger currency dwindled in the past six months as Premier Wen Jiabao cut the country’s economic growth target, Europe’s sovereign-debt crisis hurt exports, and China’s trade deficit in February swelled to the biggest since at least 1989.

Political pressure may be a “main factor” in the move, said Ren Xianfang, a Beijing-based economist with IHS Global Insight Ltd., who added that this is a “political year” because of a looming U.S. presidential election.

While the yuan reached an 18-year high at 6.2884 per dollar on Feb. 10, President Barack Obama’s administration and U.S. lawmakers say the currency remains weak enough to give China, the world’s biggest exporter, an unfair advantage in trade.
‘A Little Gift’

China always tries “to offer something” before big international meetings, said David Smick, a former Congress staff member and chief executive officer at Washington-based consultancy Johnson Smick International Inc. “It’s like when you go to dinner you take a little gift,” Smick said in Berlin.

The yuan ended last week at 6.3030 per dollar, up about 8.3 percent since the scrapping in June 2010 of an almost two-year peg imposed during the global financial crisis. The yuan’s 31 percent advance in almost seven years makes it the third best of the most-traded Asian currencies tracked by Bloomberg, excluding the Japanese yen. The Brazilian real jumped 28 percent, while India’s rupee declined 16 percent and the Russian ruble dropped 3.3 percent.

Gains have stalled this year, with expectations for a resumption damped by a slowdown in China’s growth and official comments that the currency may be near “equilibrium” are damping expectations for strengthening.
Stiglitz on Yuan

Nobel laureate Joseph Stiglitz told reporters that the yuan may weaken as China takes steps to increase the ability of its investors to invest abroad.

“Opening up the band in conjunction with other actions they’ve taken may lead to a fall in the exchange rate rather than appreciation,” he said in Berlin, where he’s attending an economics conference. “To the extent they do open up, money may leave and that will weaken their currency. A free market exchange rate may not go in the way the U.S. thinks it should.”

The central bank said the widening of the band is to meet “market demands,” promote price discovery, and enhance the currency’s two-way flexibility. The change improves a managed, floating exchange-rate regime that is based on supply and demand and operates in reference to a basket of currencies, it said.

The monetary authority will keep the currency “basically stable at an adaptive and equilibrium level,” to preserve the stability of the Chinese economy and financial markets, it said.
Betting on Depreciation

Twelve-month non-deliverable forwards for the yuan were yesterday 0.5 percent weaker than the onshore spot rate, according to data compiled by Bloomberg, suggesting that the currency could fall over that period. The currency has weakened 0.14 percent against the dollar this year.

“China will avoid significant appreciation or depreciation this year,” Lu Ting, an economist at Bank of America Corp. in Hong Kong, said after the announcement, citing reasons including an “uncertain” global economy.

Cliff Tan, a currency analyst at Bank of Tokyo-Mitsubishi UFJ in Hong Kong, said today he’s leaving unchanged a forecast for the yuan to reach 6.17 by the end of 2012.

After keeping the exchange rate stable for a decade, China allowed its currency to strengthen 21 percent from July 2005 to July 2008, including an initial, single-day gain of 2 percent. Appreciation was then halted for almost two years to help exporters weather a global recession.
Romney’s Concern

Mitt Romney, a Republican candidate, said China’s trade practices are unfair and the country should be labeled a manipulator of its exchange rate, in a Feb. 17 opinion column in the Wall Street Journal.

The U.S. House of Representatives has yet to take up a bill passed on Oct. 11 by the Senate, which would allow sanctions on countries with so-called misaligned exchange rates. Treasury Secretary Timothy F. Geithner said on Jan. 27 that China’s currency is “still below almost all measures of fundamentals.”

The U.S. trade deficit with China rose 8 percent to $295 billion last year, fueling friction between the two nations.

PBOC Governor Zhou Xiaochuan said March 12 that market forces are playing a greater part in determining the yuan’s value, which is also affected by the balance of payments. China may “appropriately” widen the trading band to better reflect market supply and demand, the official Xinhua News Agency reported Zhou as saying on March 5.
‘Momentous’ Steps

Today’s move may mark an early stage of a capital account opening that will be as “momentous” for China as joining the World Trade Organization in 2001, Tim Condon, chief Asia economist at ING Financial Markets in Singapore, said in an e- mail. By increasing two-way exchange rate risk, China can make the currency less attractive as a speculative bet, he said.

The announcement is also a “concrete follow-up” to government statements that the yuan is close to an “equilibrium” level, Condon said.

China will aim for a 7.5 percent economic expansion this year, having had an 8 percent goal in place since 2005, Premier Wen said on March 5. Growth slowed more than forecast last quarter to the least in almost three years, with the economy expanding 8.1 percent from a year earlier, a statistics bureau report showed yesterday.

Before today’s announcement, views had varied on how far the central bank could or should expand the trading band.

One option is an increase to as much as 2 percent, China Business News reported on Dec. 9, citing Liu Yuhui, a researcher with the Chinese Academy of Social Sciences. A band of 0.7 percent or 0.75 percent would be appropriate, Li Daokui, a then central bank adviser, said March 6, adding that this was his personal view.

“Widening the band allows the yuan to be more flexible and addresses the external pressure on yuan appreciation,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB.