Galt's Gulch

China making a move by strengthening yuan?

Posted by $ blarman 8 years, 8 months ago to Economics
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Note that China is probably strengthening the yuan in the run-up to the October announcement of an alternate reserve currency by the IMF. This would be a bellwether moment to the US and probably would result in skyrocketing interest rates, a further weakening of the dollar's value, and potentially all kinds of other economic side-effects.
SOURCE URL: http://finance.townhall.com/columnists/mikeshedlock/2015/08/10/chinas-exports-plunge-8-in-july-spotlight-on-us-trade-imbalance-with-china-n2036755/page/full

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  • Posted by Lucky 8 years, 8 months ago
    Re the economy of China which is slowing-
    the Keynsian word stimulus is used .
    If they believe in that, do not expect an upturn.
    Well I suppose they have believed worse stuff in the past.
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  • Posted by straightlinelogic 8 years, 8 months ago
    China just devalued the yuan, which in foreign exchange parlance means weakening the yuan exchange rate against the dollar, not strengthening it. So no, the Chinese are not making a move by strengthening the yuan, they are trying to save their floundering economy by changing the terms of trade in their favor (making exports cheaper in dollar terms).
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    • Posted by $ blarman 8 years, 8 months ago
      They devalued it against the dollar (its peg) yes. But part of their move (aside from their overheated economy beginning to stall out due to massive overspending) is also to position the yuan for inclusion in the basket of the IMF's currencies to be used to value SDR's come October. The yuan has long been manipulated to take advantage of the strength of the dollar in trading circles - China's moves to decouple, along with their moves to purchase gold (it is speculated that they are now the third, if not the second volume holder of gold behind the US and Germany respectively) are to attempt to mitigate/hedge against world economic trends - including its own.
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  • Posted by $ jbrenner 8 years, 8 months ago
    Is the October IMF announcement the time when the US dollar, which has stayed high in value despite any good economic reason why it should, finally gets its comeuppance?
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    • Posted by $ blarman 8 years, 8 months ago
      I read a really interesting book called "The Death of Money". In that the author lays out the case why the Federal Reserve has been in effect ripping off other nations for years by inflating the US currency. What that really does (aside from bilking billions of dollars from savings accounts every year) is to pressure other nations into inflating their currencies accordingly. In effect we've been waging an economic war with every other nation on Earth for the past century since Nixon took us off the Gold Standard in 1971.

      This potential move by the IMF to restructure the SDR's (Special Drawing Rights) is to make their currency the value of several currencies in a basket - kind of like a mutual fund - instead of simply in dollars. What that will potentially do is wreak absolute havoc on the US economy as suddenly the weak dollar gets even weaker. This could spur interest rate hikes, either inflation or deflation, and all kinds of adjustments as the dollar's real value is forced to the forefront.
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      • Posted by straightlinelogic 8 years, 8 months ago
        The dollar has been one of the world's strongest currencies for the past two years (the Chinese just devalued the yuan against it, see my other comment). The world is long dollar denominated debt and thus short dollars. As debt deflation intensifies, dollar shorts will have to cover at progressively higher prices. You are correct that competitive devaluation under fiat currencies has greatly benefited the US since 1971. However, "The Death of Money" is somewhat of misnomer; money died in 1971; debt is now the medium of exchange and store of value. On the upside of the debt cycle, the US has been the prime beneficiary of competitive devaluation and expanding debt. The downside will work in reverse. The US will have one of the world's strongest currencies precisely because there is so much dollar debt, which debtors will be seeking to shed. In so doing, they will demand dollars.
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        • Posted by $ blarman 8 years, 8 months ago
          I agree with much, except the last part. If the dollar's value drops, countries will have a hard time divesting themselves of dollars at market value and will demand steep risk incentives to take on dollars, driving its nominal value down and increasing the exchange rate. We will see inflation of the dollar against other currencies which are more solid, including the yuan and the euro.

          Most especially damaging will be the loss of the so-called petro-dollar as oil-rich countries start taking on oil contracts denoted in other currencies. This will further drive down demand for the dollar and increase the rate of its decline.
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  • Posted by wiggys 8 years, 8 months ago
    as a direct result of the usa slowing the purchases of goods from china they are in a world of hurt. If we slow our purchases the rest of the world follows suit. the only way the chinese have to combat that is to reduce the value of their currency so their products are more desirable by consumers world wide. if our products become more expensive in china the government really doesn't care.
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