China Says Global Easing Policies Risk Devaluation

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Global central banks risk inflation, currency devaluation and a “big consolidation” in bond markets by pumping cash into their economies, the People’s Bank of China said in its quarterly monetary policy report.

The Federal Reserve and the Bank of England this year started quantitative easing, or printing money to buy government bonds, a policy that the Bank of Japan pioneered to revive its economy at the start of the decade. The European Central Bank’s 22-member board, which meets tomorrow, is split on whether it should buy financial assets to tackle its recession.

“A policy mistake made by some major central bank may bring inflation risks to the whole world,” China’s central bank said in the report today. “As more and more economies are adopting unconventional monetary policies, such as quantitative easing, major currencies’ devaluation risks may rise.”

Chinese Premier Wen Jiabao expressed concern in March that the dollar will weaken, eroding the value of China’s holdings of Treasuries, as the U.S. borrows unprecedented amounts to spend its way out of recession. China’s Treasury holdings climbed 52 percent in 2008 and stood at about $744 billion as of the end of February, according to U.S. government data.

“In the medium and long term, as the financial markets stabilize and economies gradually recover, increasing inflation expectations, rising interest rates and central bank’s liquidity-absorbing operations may cause a ‘big’ consolidation in bond prices,” the central bank’s statement said.

From Bloomberg News.