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Again, the US is trying to convince China to increase the value of the Yuan against the dollar. As some of the comments to this article attest, the cost of the change would be to American consumers. There are also many US companies that do not like the idea, because they have operations in China, based on taking advantage of the cheap labor and resources.

Not all American companies favor pushing for a stronger yuan. Executives of multinationals with big operations in China tend to favor keeping currency rates steady.

“The stable yuan is obviously easier for managers to cope with,” says Kevin Wale, president and managing director for General Motors China Group, which sources 85 percent of its parts locally.

The political pressure in the US is based on job creation, and some economists–not all–argue that maybe a million jobs could be created in the US if the dollar were cheaper.

China, meanwhile, argues that a revaluation would not have a significant effect on trade balances, and the drop in the Euro has already put pressure on Chinese manufacturers.

Chinese policymakers insist that adjustments in the yuan’s value will have little direct impact on the trade balance with the United States, and some fret that the yuan’s nearly 15 percent gain against the euro is already too great a burden.

“A revaluation would not bring any good to our economy, as our exporters already are under heavy cost pressures. It would be dangerous to revalue,” said Yi Xianrong, an economist at the government-run Chinese Academy of Social Sciences in Beijing.

I agree with Treasury Secretary Timothy Geithner, who said that China will do what they think is best for themselves, and that will probably include a revaluation sometime in the future.

“I think it is, of course, China’s decision about what to do with the exchange rate — they’re a sovereign country,” Geithner said. “But I think it’s enormously in their interest to move, over time, to let the exchange rate reflect market forces, and I’m confident that they will do what’s in their interest,” he said while visiting Boeing and other exporters in Washington state.

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This story–China’s growth accelerates to 10.7 percent in 4Q–creates some curious reactions in world markets. Asian stock indexes went down, and the US dollar rose to a five-year high. The funny part is that the good news also brought renewed expectations that China would raise interest rates and tighten money supply growth. Inflation is feared, apparantly more than a reduction in the rate of growth.

Strong Chinese growth could help to drive a global recovery by boosting demand for foreign oil, consumer goods and other imports. It also might give Beijing confidence to ease currency controls and allow its yuan to rise against the dollar, which could boost imports by making them cheaper for its consumers. China has kept the yuan steady against the dollar since late 2008 to keep its exporters competitive abroad.

But that progress could be derailed if a burst of inflation saps the spending power of Chinese families and forces the government to clamp down so severely on credit and investment that it slows the creation of new jobs.

So the expected increase in interest rates explains the lower spending expectations in the rest of Asia, but that would normally make the currency stronger against the dollar. Must be that the “confidence to ease currency controls,” is seen as a stronger influence.

Myself? I doubt it. For years China has been able to keep the Yuan relatively low through currency purchases, and still manage inflation domestically. Like mentioned later in the article, most of China is still a developing country.

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us_securitiesExpansionist monetary policy, but I did not know it was not commonly used.

The Fed surprised investors on Wednesday by announcing it would buy $300 billion worth of these U.S. Treasuries for the first time since the early 1960s as part of a move to inject an additional $1 trillion into the U.S. economy by also purchasing more U.S. mortgage and agency debt.

The news spawned higher demand for Asian securities and sent the value of the dollar into free-fall. The plan is meant to feed into the economy by lowering borrowing costs and attracting investors back to work. It seems to have spurred some optimism, which is good in itsself, but I don’t know if it will work. Will the sellers of these securities turn around and spend the cash? Or find someone who wants to borrow it?

What do you think?