Yellen of the S.F. Fed provides some clarity on U.S. policy...

toward China. The full report can be found here. This definitely apes the comments from the Senate Finance committee who were very concerned about Chinese currency manipulation.

Overall, we encountered concerns about U.S. monetary policy, and considerable interest in understanding the Federal Reserve’s exit strategy for removing monetary stimulus. Because both the Chinese and Hong Kong economies are further along in their recovery phases than the U.S. economy, current U.S. monetary policy is likely to be excessively stimulatory for them. However, as both Hong Kong and the mainland are currently pegging to the dollar, they are both to some extent stuck with the
policy the Federal Reserve has chosen to promote recovery. Moreover, officials in both places are concerned about the prospects of dollar depreciation because they are large net holders of dollar denominated assets.

In China’s case, increased exchange rate flexibility could mitigate growing inflationary concerns, and also act toward easing global imbalances and encouraging the development of the household sector, a shift the Chinese government now officially says it wants. The crisis has vividly demonstrated to the
Chinese one of the downsides of pursuing an export-oriented growth strategy, namely increased vulnerability to adverse foreign shocks. The global crisis may therefore have enhanced the political will for an expedited transition to a more balanced Chinese economy.

Janet L. Yellen is president and chief executive officer of the Federal Reserve Bank of San Francisco.