China and the counterfeiters

11 May 2009 By Ian Campbell

The authorities in Beijing don t like what they see in Washington and London. Governments that print money to buy their own debt often end up devaluing the technical term is debauching their currencies. The Chinese are right to worry, even if they don t hurry a crisis along.

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A statement on the People's Bank of China's website on May 6 warned that a policy mistake made by some major central banks would put the whole world in risk of inflation. The Chinese central bank said that quantitative easing could provoke higher volatility in exchange rates and cited the appreciation of the dollar following the launch of QE and its subsequent fall. It said sizeable purchases of government bonds could keep yields low in the short term. But in the longer run inflation and interest rates would tend to rise, causing sharp falls in bond prices.

The dollar fell by about 3 US cents against the euro on May 8 to a sevenweek low of $1.365 per euro.

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