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00:00OF PEOPLE. THEY HAVE NOT COMMUNICATED THE BEST AND APPEARS TO HAVE GENERATED A LOT OF VOLATILITY BUT IF IT WASN'T THIS, IT WOULD BE SOMETHING ELSE. CHINA HAS BEEN UNDER STRONG MARKET PRESSURE DOWNWARD. THE CHINESE CURRENCY FOR THE LAST TWO YEARS HAVE BEEN UNDER DOWNWARD MARKET PRESSURE. THEY'VE SPENT MORE THAN $600 BILLION IN RESERVE TO SLOW DOWN THE DEPRECIATION, BUT THEY HAVE A LOT TO DEPRECIATE FROM. I DON'T THINK IT IS A BIG DEAL. 6% IS NOTHING COMPARED TO A LOT OF OTHER CURRENCIES. THE EURO IS DOWN THREE TIMES THAT MUCH AND LAST SUMMER. IT IS REALLY A STRONG DOLLAR STORY ROOTED IN U.S. MONETARY POLICY. SCARLET: SO A STRONGER DOLLAR STORY MIGHT BE FOLLOWING THIS. CHINA TRAVEL -- CHINA TRIED TO TRANSFER INTO AN INDUSTRIAL ECONOMY. DOES IT HELP MASTIC CONSUMPTION? PROF. FRANKEL: TRADITIONALLY A WEAKER CURRENCY DOES FOLLOW EXPORTS. IT IS IMPORTANT TO RECOGNIZE THE REMEDY IS NOT DOWN. IT'S UP AGAINST ALMOST EVERY OTHER CURRENCY. THE MOST IMPORTANT ISSUE IS THE ONE YOU MENTIONED -- THAT CHINA IS UNDERGOING A LONG-TERM TRANSITION, SLOWING DOWN FROM THE 10% GROWTH OF THE 80'S AND 90'S. THE QUESTION WHETHER IT'S GOING TO BE A HARD LANDING OR SOFT LANDING, THEY HAVE IDENTIFIED PROPER POLICIES AND DID IT THREE YEARS AGO. THE SHIFT FROM EMPHASIS TO MANUFACTURING AND THE SHIFT FROM EMPHASIS AND DEPENDENCE ON INVESTMENTS TO CONSUMPTION. THE QUESTION IS WHETHER THEY CAN IMPLEMENT THAT TO MAKE A SMOOTH TRANSITION, THOSE ARE THE IMPORTANT ISSUES. SCARLET: IT'S HARD TO BELIEVE IT WAS JUST OVER ONE YEAR AGO, THE SMB SWITCH THE PEG -- IS SWITZERLAND BETTER OFF FOR ABANDONING THE PEG? WHAT HAVE WE LEARNED FROM THAT EPISODE? PROF. FRANKEL: THE INITIAL MARKET COMMENTARY WAS NEGATIVE WHEN THEY DID THAT A YEAR AGO. IT WAS NEGATIVE WHEN THEY ADOPTED THAT CEILING AGAINST THE EURO THREE YEARS AGO. IN BOTH CASES, IT LOOKS BETTER WITH THE PASSAGE OF TIME AND IT MATTERS A LOT. IT WAS A VERY STRONG APPRECIATION OF THE SWISS FRANC AND HAS SORT OF COME DOWN ON A WIDER BASIS. THE COMMON ELEMENT IS THAT IT'S HARD TO FIND THE MARKETS. IF YOU HAVE A PEG IN THE MARKETS AREN'T SURE IF THEY WANT TO PUSH ONE WAY OR ANOTHER, YOU HAVE TO RELAX AND GO WITH THE FLOW. ALIX: IS CHINA ACTUALLY DOING THE RIGHT THING RIGHT NOW? PROF. FRANKEL: THERE'S SOME MARKET VOLATILITY IN THE MARKET SINCE LAST SUMMER AND THEY HAVE NOT HANDLED CAN INDICATION THE BEST. BUT THE STRUCTURAL ISSUES, THE REFORM OF THE ECONOMY AND THE REFORM OF THE COUNTRYSIDE AND THE SWITCH FROM MANUFACTURING TO SERVICES, I WOULD SAY THEY HAVE CORRECT REALLY IDENTIFIED THE RIGHT TO POLICY SHIFT AND IT'S A QUESTION OF WHETHER THEY CAN IMPLEMENT THEM. SCARLET: THANK YOU FOR YOUR TIME. ALIX: COMING UP, OUR CO-ANCHOR, JOE WEISENTHAL SISTO WITH THE COLUMBIA PRIME MISTER TALKING

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Why Don't Markets Believe the PBOC?

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