NationStates Jolt Archive

NOTE: A freely trading Chinese yuan would probably rise in value against the dollar, making Chinese exports to the United States more costly. Allowing the Chinese yuan to "float" against the US dollar would not only help aleviate the massive trade deficit with China, but encourage other countries to permit their currencies to appreciate against the dollar, lowering trade deficits across the board.



A Currency Afloat (for All of 20 Minutes) (http://www.nytimes.com/2005/04/30/business/worldbusiness/30yuan.html?th&emc=th)

By KEITH BRADSHER
Published: April 30, 2005

HONG KONG, April 29 - The Bush administration has been pressing the Chinese government for years to allow its currency, which is pegged to the dollar, to trade more freely. It got its wish on Friday - but only for 20 minutes.

A freely trading Chinese yuan would probably rise in value against the dollar, making Chinese exports to the United States more costly. That, in turn, would give relief to American manufacturers battered by low-priced Chinese goods as the American trade deficit has been growing faster with China than with any other country. It would also be a political victory for the Bush administration.

Until this afternoon, China had ignored the demands. But as traders drifted back to their desks from lunch in Asian financial capitals on Friday, the yuan suddenly broke out of its prescribed trading range. No one knows for sure if the move was deliberate or a result of a technical glitch.

But regardless of whether it was a Chinese test of their ability to manage a rising yuan or simply a case of the Chinese central bank briefly failing to buy enough dollars to keep supporting the American currency, traders noticed it and the prices for many other currencies began to shift in response.

The yuan climbed until it took 8.270 of them to buy a dollar instead of the usual 8.276. That difference, of only six thousandths of a yuan, might not seem like much of a change.

But it came on the eve of a weeklong holiday in China and at a time of intense speculation that a Chinese revaluation of the currency, which has been fixed by Beijing against the dollar for years, might be imminent. The brief appreciation, a hint of further rises if the yuan were to float, was enough to roil currency markets around the world.

It would help, but the government is borrowing such huge amounts at the moment, which comes from foreign central banks, that it wouldn't fix the current account problem completely.

I would also hope that the revaluation was allowed to happen gradually, rather than having the yuan set free all at once, because shocks to economic systems are never good. They create all sorts of horrible destructive waves of consequences that can't always be predicted, and set yo-yo effects going which could last for years.

I bet the 20 minutes of free movement was deliberate. Even the Chinese realise that they will have to revalue to yuan soon, I think.

The reason why the Yuan stays "pegged" to the dollar is that their Central Bank buy up american dollars. If we demand they stop doing this, it will make it more expensive for the United States to borrow which it needs to do.

They'll probably have to float it sooner or later, perhaps when the US dollar improoves will be a better time for them.


Our dollar went from US$0.47 a few years ago to about US$0.65 (it's gone over US$0.70 a few times). Our strawberry exporters couldn't take advantage of thanksgiving like they usually do.

The pound was pretty steady at $1.50 over here for ages, which was fine for mental conversions, but now it's at $1.90. When it gets to $2.00, if it does, that would be beautifully simple. I think we should aim for that :D .

Apparently New York at Christmas was chock full of Brits on shopping trips taking advantage of the exchange rate to pick up cheap goods. You could apparently save money by flying to New York to do your Christmas shopping.

The chinese do this on purpose. They are not stupid in pegging there currency to the us dollar. If they didnt it would kill there manufacturing sector. It is a very smart thing to do for them. Now if I were the US I would consider actions to prevent them from doing this. Why give your advisary an advantage?

The chinese do this on purpose. They are not stupid in pegging there currency to the us dollar. If they didnt it would kill there manufacturing sector. It is a very smart thing to do for them. Now if I were the US I would consider actions to prevent them from doing this. Why give your advisary an advantage?

In trade terms they aren't adversaries. They're partners. Any trade sanctions that the US imposes will harm the US as well. So what are you going to do? Nuke them? The fact is that, because China is prepared to forego cheaper imports, whereas most countries balance imports and exports, it has the US by the balls because it can make things umpteen times cheaper.

The good news is that China does have incentives to revalue its currency. Doing so will bring it cheaper imports and therefore greater wealth, and if it feels that it can't continue its growth at the current rate anyway, as many think it can't, it will want to devalue to prevent inflation.

These things tend to work themselves out in the end.

Well they are advisaries. Trade partners? yes. The US was a trade partner with the Soviet Union. Didnt stop us from building up massive nukes pointed at them. No I dont advocate Nuking anyone. But why do we trade with these clowns when we could surely build up our neighbors economies and Central and South Americas economies instead of the red Chinese.

I hope it remains fixed...the longer the US defecit grows, the happier I am.

Well they are advisaries. Trade partners? yes. The US was a trade partner with the Soviet Union. Didnt stop us from building up massive nukes pointed at them. No I dont advocate Nuking anyone. But why do we trade with these clowns when we could surely build up our neighbors economies and Central and South Americas economies instead of the red Chinese.

Because trade links will reduce the chances of conflict and, through wealth, increase democratic pressures. Your way would increase the chances of conflict and allow the dictatorship to embed itself. China is a problem, but it is one that can be solved in better ways than a conflict that no one could win. You shouldn't think in terms of conflicts all the time.

I hope it remains fixed...the longer the US defecit grows, the happier I am.


Ignorance is bliss isnt it?

I hope it remains fixed...the longer the US defecit grows, the happier I am.
Um ... I'm almost afraid to ask this, but why??

Because I hate the US...sucks that I live here though.

If the US economy goes down then the rest of the world goes with it. It isn't something that any right-minded person should want to see, even if they bear malice towards the US.

If that is so, explain to me why Europe is prosperous now. The only parts of the world that would collapse are those that produce oil...That's where our money goes...Not GDP$2 Hardyharia in Africa

Because I hate the US...sucks that I live here though.
So leave already. You're free to do that, you know, just as you're free to publicize your own strange version of self-loathing.

Wow nice spin on US economic doom. The only thing holding up the US credit economy is the fact that China is buying up billions of dollars, but as they keep warning Bush, they just can't keep doing this. On top of this the Chinese are beginning to actually realize when they drop the dollar against the Yuan their massive oil purchases get cheaper.

The cheap credit pool is beginning to dry up and when it does Bush will have to pull a Nixon, and that is going to suck.

So leave already. You're free to do that, you know, just as you're free to publicize your own strange version of self-loathing.
Beleive me, I would...if I were old enough. I'll be out of here by 2020 at the latest. 2013 at the earliest.

If that is so, explain to me why Europe is prosperous now. The only parts of the world that would collapse are those that produce oil...That's where our money goes...Not GDP$2 Hardyharia in Africa
Europe isn't extremely prosperous right now - no more so than the USA is at best. All of our imports aren't just oil. The USA imports well over 250 billion dollars worth of Western European goods each year.

edit : Had to edit out something that didn't make sense.

Should China float the Yuan, the value of the Dollar would dip like hell, Among other things that can happen to bring down the dollar value.That would make the US trade deficit loose weight (its dollar denominated: If the dollar should drop to half its worth, so would the deficit).

BUT.. there is a shit load of dollars out there. Like, 60% of all monetary reserves of the world are dollar denominated. If the dollar loses value, those reserves (that are in the hand of foreign countries) lose value. So those owners will likely try to sell Dollars for other currencies (namely the Euro), dipping the Dollar value even further, until the dollar is worthless. When this happens, Europe will be screwed in the short run, since we wont be able to export anything (the euro will be way to high). But the US will be Uber screwed: Inflation will skyrocket, and your interest rates will skyrocket too. And if this should happen, your economy is thrown into the garbage for some years, though it is totally ludicrious to expect a recession like 1929, or the german post ww1 recession.

The long term effects are more damaging for the US, actually: One way your state has to fund itself is literally to print money. Printing money generates inflation (which is essencially, a tax), but this inflation is payed not just by US citizens, but by all those guys that own 60% of their reserves in dollars. Its a way that the US has of taxing the world. Should the dollar loose too much value, and everyone start dumping it in order to minimize their losses, this source of revenue for the US treasury will go away.. which means that the US goverment will have to look for other sources of revenue. Like raising taxes, thus killing a big chunk of the US economy strenght.

America needs a consitant foreign policy with China.