TIE: In China, inflation is soaring. Officials are trying to slow it down, but they're not yet talking about dramatic appreciation of the currency to deal with rising prices. Instead, they will continue to raise interest rates and use other administrative measures to slow down the economy. Can Chinese officials have any hope of controlling inflation without dramatic currency appreciation? Warsh: China's predominant objective over the course of the next couple of years is to ensure domestic tranquility. The Chinese leadership recognizes that inflation can lead to social unrest, and so dealing with inflation risks is a top priority. Foreign exchange rates can be an effective tool to deal with inflation risks, generally more so than ad hoc administrative controls. If Beijing were forced to slow the rate of growth over the course of the next couple of years in order to more effectively deal with inflation risks, then that's a trade-off I suspect they would pursue.
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