This report from the Wall Street Journal (page A2 in today's print edition) strikes me as interesting:
Even as Washington and Beijing harden their rhetoric in a dispute over China's currency, the launch of a sophisticated foreign-exchange trading system in Shanghai suggests there still is room for compromise. Coincidentally, only hours after Washington raised the threat of retaliation unless China allows the yuan to appreciate, Chinese authorities opened a trading system that lays the technical groundwork for a broad liberalization of the country's currency regime...
The new Shanghai trading system enables banks to exchange U.S. dollars for yen, euros and other currencies. A total of eight currency pairs are included in the system. The new system is in addition to an existing trading platform that permits banks to exchange yuan for U.S. dollars and other global currencies. The expansion makes Shanghai's platform more closely resemble a full-service currency exchange...
Mr. [Kenneth Poon, head of trading global markets China for ABN Amro Bank] says it remains unclear whether more flexibility in the Chinese currency or an outright revaluation -- if it were sanctioned by Beijing -- might be introduced via the new system.
Meanwhile in Hong Kong (page C3):
The Hong Kong Monetary Authority said it will introduce a ceiling on the local currency's exchange rate to the U.S. dollar, a move that is aimed both at discouraging use of the Hong Kong dollar as a proxy for speculating on the yuan as well as giving the body room to raise interest rates...
The measure aims to "remove uncertainty about the extent to which the exchange rate may strengthen," the monetary authority's chief executive, Joseph Yam, told a news conference.
This is the first time since the 1997-1998 Asian financial crisis that the monetary authority has made a significant change to its Currency Board system of a pegged exchange rate. Financial Secretary Henry Tang stressed that the government has no intention of changing the fixed exchange-rate system, which pegs the Hong Kong dollar to the U.S. dollar at an exchange rate of HK$7.80...
In recent months, market participants have been aggressively buying the Hong Kong dollar whenever talk of an imminent yuan revaluation intensified, pushing up the value of the Hong Kong dollar. In early May, for instance, it reached HK$7.786 to the U.S. dollar amid market talk that Beijing would allow the yuan to appreciate during the Labor Day holidays in early May.
The influx of this speculative capital has flooded the city's interbank market with excess liquidity and kept local interest rates well below those of the U.S. -- a historical anomaly under Hong Kong's 21-year currency peg with the U.S. dollar.
Mr. Yam said the persistence of such loose monetary conditions could cause inflationary pressure over the long term as the local economy continues to recover.