Inflation: Inflation’s siren seductions should be resisted. Some pundits, including Reuters Breakingviews’ Edward Hadas, argue that a spot of inflation could be just the remedy to bail out those who borrowed too much in the heady days before the credit crunch. But the flipside of a deliberate inflation policy would be that savers would be robbed. That would be bad policy.

The current debate started with Olivier Blanchard, the International Monetary Fund’s head of research, who argued that a slightly higher target inflation rate - say around 4 percent a year - would have given the monetary authorities more freedom to react when the economy fell off a cliff. Cutting nominal interest rates to zero, in such an environment, would mean that “real” interest rates were minus 4 per cent. That's double the stimulus than can be obtained nowadays when the target inflation rate around the world is roughly 2 per cent.

There may be something in this argument if the new higher target inflation rate was announced ex ante - so that everybody knew the rules of the game. But Hadas goes one step further.

He wants the rules to be changed after the event, with inflation being created now to bail out the borrowers. Such ex post revisionism would amount to expropriation of savers - who would suffer erosion in the real value of what they had squirreled away.

It could, of course, be said that the difference between 2 percent and 4 percent inflation is fairly minimal - and so the robbery inflicted on savers would also be small. That’s true. But the benefit enjoyed by borrowers would also be comparatively minor. To make a real dent in the debts of profligate governments, homeowners and leveraged buyouts, inflation would need to be much more than 4 percent - and would need to be sustained for several years.

And this is what is insidious about the inflationists’ proposal. Once it is accepted that there’s nothing too wrong with 4 percent inflation, it’s a small step to people arguing that what’s really needed is 10 percent inflation for five years. That would be real robbery. What’s more, it would then be extremely hard to switch the inflation off. The global economy would probably need to endure a cold turkey similar to that of the early 1980s when inflation last had to be uprooted.

Hadas’ proposal should be resisted not just because it amounts to a one-off expropriation, but also because of its bad effect on incentives. In his world, debtors would have discovered that it pays to run up big debts. And savers would realise that it is foolish to save. The Western world’s excessive propensity to borrow would be further encouraged. Is this really the lesson we want people to draw from the crisis?

Renminbi: China’s central bank governor has sent out clearest signal yet that the yuan might be allowed to appreciate. But investors shouldn't get too excited. Beijing still seems a long way from forming a clear view on managing the Chinese currency.

Renminbi: China’s central bank governor has sent out clearest signal yet that the yuan might be allowed to appreciate. But investors shouldn't get too excited. Beijing still seems a long way from forming a clear view on managing the Chinese currency.

The weekend comments from Zhou Xiaochuan pushed the yuan to a five-week high against the dollar in forward markets on March 8. That is in spite of Premier Wen Jiabao said a day earlier that the currency will be kept stable in 2010.

China is naturally wary stoking of expectations of yuan appreciation, for fear of attracting hot money. Still, investors should probably pay the premier more attention. The government work report, effectively an annual mission statement, indicates that stabilising and developing exports is a bigger priority this year. In the past, the report has talked more about correcting trade imbalances. Increasing exchange rate flexibility - a goal of 2008 - was missing from this year’s report.

The People's Bank of China wants to make the yuan more flexible in the long run. But it doesn't have a final say within the government on yuan policy. Those decisions are made at the state council level, which balances the needs of other government bodies such as the Ministry of Commerce, which cares more about exports. Indeed, the commerce minister poured a little cold water on the central bank governor's remarks by saying that yuan reform would be in a gradual and controlled manner.

The best way to interpret the conflicting signals is to assume that Beijing has yet to form a consensus on the yuan. That in itself suggests any policy of currency appreciation is still some way off. Even the governor himself wasn't so clear about the timing. He said the currency’s peg to the dollar in the past year was part of China's special policy to deal with the crisis, without detailing what would constitute a satisfactory recovery. Meanwhile, Premier Wen has said 2010 will be the most “complicated” year. It is hard to believe that Beijing will rush to yuan changes before the outlook is clearer.