PBOC Needs Uncle Miltie

"China, which for more than a year has been pushing its banks to pump out cash to offset the global downturn, abruptly reversed course Tuesday, in the clearest sign yet that Beijing has turned its attention to controlling the repercussions of that credit explosion. The People's Bank of China [PBOC] said it will raise the percentage of deposits that banks must keep in reserve and can't lend, a shift intended to stave off inflation and asset bubbles that can accompany it. ... In this environment, deflecting inflation has become a growing priority for Beijing. Sensitivity to inflation runs deep in China--a reminder of how poor the country remains, with the price of pork, for instance, remaining a major consideration in household finances", James Areddy at the WSJ, 3 January 2010, link:

ttp://online.wsj.com/article/SB126331431653926353.html.

The PBOC could stop expanding the yuan stock, however it apparently wants to continue to support the dollar on its foreign exchange desk while reigning in domestic "inflation". Good luck. Uncle Miltie said in effect, it doesn't matter which desk does what, only the net effect on the money stock is important.