Chinese monetary policy

The People's Bank of China raised reserve requirements for the sixth time this year. They are trying to moderate economic growth to slow inflation. However, they don't want to let the Yuan appreciate. Thus, their current tack is to reduce liquidity.

Now, why don't they want the Yuan to appreciate? That would definitely slow down their economy and remove liquidity by making Chinese goods more expensive in the rest of the world. I think they see several problems with that. 1. Fewer exports means lower employment. 2. A higher Yuan means that China loses billions on their U.S. dollar denominated holdings. 3. A low Yuan also encourages investors to keep their money at home instead of sending it abroad.

The problem with this is that by keeping the Yuan low and trying to mop up liquidity with other methods, the People's Bank of China is trying to have their cake and eat it too. On the one hand, they print money to keep the Yuan low, and on the other hand, they raise reserve requirements to reduce liquidity. I believe that slowing economic growth and inflation is impossible as long as the PBOC has a low Yuan as its first priority. Right now, their policies are self-contradictory. This cannot end well.