Delayed float

Speaking at the close of two days of talks between China and the US that were grandly titled Strategic and Economic Dialogue,US Treasury Secretary Timothy Geithner made headlines when he appeared to back off from a confrontationist stance over Chinas currency,saying that reform of Chinas currency was of course,Chinas choice. This follows a fraught few months during which Washington boiled at what is perceived there as Chinas unfair manipulation of the currency. China pegs the renminbi,setting it at 6.8 to the dollar,which critics say means the price of its exports are kept artificially low,giving its exporters an unfair market advantage over other countries products.

But Geithner seems to have recognised that pressure on China in Beijing-speak,external noise to alter that can be counterproductive. It will,first,produce the sort of nationalist refusenik backlash that China has come to specialise in recently. And,second,the economic equations have altered dramatically recently: the euro has gone into freefall following Europes debt crisis,pressuring Chinas exports to the EU. There is also the small question of doubts as to whether a revalued yuan will help the US to the extent it expects at all: the US spends so much and saves so little that the dip in Chinas exports might well be compensated for by increases in everyone elses. The markets reacted: traders in currency forwards factored in expectations of zero appreciation of Chinas currency over the next three months.

The question is: what is Indias position on the currency issue post-eurozone crisis? And should it have one at all? Some time ago,the governor of the RBI reportedly joined with his Brazilian counterpart to speak out in favour of a stronger yuan. This is unlikely to please the Chinese,or to make freeing the yuan happen sooner. It is,nevertheless,quite true that India is a possible gainer from a free-floating yuan. While Indian consumers will find Chinese products marginally more expensive domestically,Indias gasping export sector wont complain. Nevertheless,joining in Geithners public silence seems sensible for now.