Figuring out what the People's Bank of China is doing can be as perplexing as parsing a statement from Alan Greenspan, the notoriously opaque former U.S. Federal Reserve chairman.
Now that the U.S. central bank has made it clear that any further economic assistance will have to wait until September -- if it comes at all -- the world is even more reliant on China, the second largest economy, to do what it can to support growth.
Letting the yuan rise more rapidly is arguably the most potent option available. It would send an immediate signal that Beijing is confident in China's economic strength despite growing global gloom, and that it is committed to a longer term goal of curbing its reliance on exports.
On any objective gauge, the Chinese currency should be higher today than it is, Reserve Bank of Australia Governor Glenn Stevens said on Friday.
I think it would be beneficial to the global economy, and beneficial to the Chinese people for there to be more flexibility in that price. There is no shortage of people telling Chinese authorities that, he said.
Indeed, this has been a recurring theme with China for the better part of the past decade. Many economists argue that the less pressure the world places on Beijing, the more likely policymakers are to loosen their grip on the yuan.
In the past three weeks, China has come tantalizingly close to signaling some sort of a policy shift. The PBOC has fixed the yuan mid-point at a series of record highs, and did so yet again on Monday.
A flurry of articles and editorials in government-controlled newspapers have argued that the time is right for faster appreciation.
But just when investors and economists smelled a change, the PBOC stepped back and let the yuan drift sideways for a week. Reuters spoke with several analysts at Chinese government think-tanks, who said expectations of a big move were misplaced.
Liang Youcai, senior economist at the State Information Center, said a sharp yuan rise could backfire by attracting more investment money into China, worsening the inflation pressures that the PBOC wants to counter.
Still, the yuan has risen about 0.8 percent against the dollar so far this month. That may sound modest, but considering it rose just 2.3 percent over the first seven months of the year combined, it shows Beijing has stepped up the pace even though growth concerns have intensified.
Back in 2008, China responded to the global financial crisis by halting the yuan appreciation, and did not reverse course until June 2010 -- a full year after the U.S. economy officially exited the recession.
This time, Chinese policymakers appear to be still in observation mode, said Grace Ng, an economist with JPMorgan in Hong Kong.
Beijing is well known for its policy cautiousness. Even when state-linked newspapers were talking up the chances of a swifter yuan rise, some government officials stressed that now would be a dangerous time to do so because growth is slowing in China's two biggest export markets, the United States and Europe.
The mixed messages may reflect disagreement among Chinese officials about the ideal policy path -- another factor that points to Beijing proceeding slowly.
The PBOC itself has said repeatedly that inflation remains its no. 1 concern, suggesting it is inclined to keep tightening monetary policy despite concerns that the global economic malaise could deepen China's slowdown.
Several major banks including UBS lowered their growth forecasts for China through 2012 last week, largely because of concern that exports will fade.
Actions speak louder than words, especially when the words are inconsistent. A closer examination of the yuan's recent moves suggests Beijing is allowing a bit more flexibility.
Tellingly, China has let the yuan to rise against the currencies of several of its key trading partners, not just the U.S. dollar. On a trade-weighted basis, the yuan is at a three-month high.
Back in September 2010, the last time investors got their hopes up for a speedier yuan rise, Beijing did allow the currency to rise more rapidly against the dollar but it moved in the opposite direction on a trade-weighted basis.
Jim Walker, founder of Asianomics in Hong Kong, is not holding his breath for decisive action this time around either.
We've been waiting for two years for a significant move in the renminbi (yuan) and we haven't got one, he told Reuters.
FOLLOW THE LEADER
For China's Asian neighbors, a stronger yuan would provide a bit of cover for them to let their own currencies rise more quickly without jeopardizing exports. That can be a useful tool for containing stubbornly high inflation.
Singapore and Indonesia have been among the most aggressive in using currency appreciation to combat price pressures. Both have shown success, although Singapore's inflation picked up more than economists had expected in July.
The biggest benefit for the world may be psychological. If China endorses a faster yuan rise, it may quell concerns that the economy is faltering as global growth slows.
Letting the currency do some of the work in fighting inflation would also give the PBOC a bit of wiggle room to hold off on further interest rate rises, which would put an unwelcome drag on economic growth.
But Walker, the Asianomics founder, said China cannot hope to contain price pressures when interest rates are below the inflation rate, even if it lets the currency rise faster.
Frittering around with the renminbi is fine. It will marginally tighten monetary policy. But until you send the right signal about the cost of capital, problems will remain, he said.