RMB

The question of whether China is overwhelmed by capital inflows has been asked for quite a while now. If a question continues to be asked, there is probably a good reason for it. Whether the answer is yes or no depends on how you look at it.

Brad Setser, in his highly recommended blog at RGE Monitor, has written a lot about the drivers of capital inflows into emerging markets and how they challenge fixed exchange rate policies.

High food prices on the international markets are getting a lot of attention and are leading to different types of policy action in different countries. Discussions on the impact of international commodity prices on domestic prices often look at how much food countries import. The reasoning is that if countries are significant importers of food, domestic food prices are affected a lot by international prices, and if they are not significant importers, the impact of international prices should be limited.

In recent months I have come across several of these discussions. The most recent one was yesterday, in the Lex column in the Financial Times. Writing about the appreciation of the China’s Renminbi, Lex discusses the view of many, including we at the World Bank, that inflation concerns have strengthened the case for appreciation of the RMB. “But this belief, predicated in large part on China’s resurgent inflation, misses a key point. Consumer prices rose nearly 9 per cent year on year in February, largely as a result of rising food prices. A stronger currency would, however, do little to make food cheaper. China is largely self-sufficient in food, which accounts for just above 1 per cent of imports.“