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China’s Gao Says QE Devaluing Money, Stoking Inflation

China Investment Corp. Vice Chairman Gao Xiqing said that central banks’ quantitative easing policies are hurting the value of money just one day after the Federal Reserve maintained plans to buy $600 billion of Treasuries.

“You know money is gradually becoming not worth the paper it’s printed on,” Gao said at an event sponsored by HSBC Holdings Plc at the World Economic Forum in Davos, Switzerland today. Recent gains in commodity and food prices reflect the “long-term view” of investors that prices will accelerate, he said.

The Fed and the European Central Bank have kept their benchmark interest rates at record lows to spur their economic recoveries, triggering concern in emerging markets that the resulting flood of capital will undermine currencies such as the dollar and spark inflation.

“We’ve started collecting Zimbabwe notes,” Gao said, referring to an economy whose currency was scrapped in 2009 after inflation reached 500 billion percent. He noted investors are also discussing whether central banks will pursue more rounds of quantitative easing.

The Fed yesterday reiterated its intention to keep its benchmark “exceptionally low.”

Gao, whose sovereign wealth fund manages about $300 billion, signaled that while industrial nations are now more welcoming of China’s money following the financial crisis, their past criticisms may hurt their ability to attract it.

‘Long Memories’

“People have long memories,” he said. “We have this yo-yo when being treated by a few major countries.”

“In many countries we are now treated differently,” he said. “We should be the most welcome investor.”

Inflation concerns have become a new theme in the hallways of Davos’s Congress Center as emerging markets including China tighten policy and record food prices fan social unrest in North Africa. Chinese inflation ran at 9.6 percent in December.

Inflation nevertheless is not an immediate concern and prices for securities that offer protection against it are “not up there yet,” Gao said. A record $13 billion auction of 10-year Treasury Inflation Protected Securities last week attracted lower-than-average demand.

“In shorter run, you look at the numbers and fundamentals and you think there’s some inflation pressure but it’s not something we have to worry about,” Gao said.

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