The Yuan vs. the Dollar

[Don Corleone]

I thought earlier this year, PRC officials had agreed to peg the Yuan to an average of the Euro, the dollar and one other currency.

Anyway, what do you guys think about this?
China resisting efforts to free currency (http://news.yahoo.com/s/ap/20050517/ap_on_go_ca_st_pe/us_china_currency_6)
Should China be free to artifically set the value of it's currency in the currency exchange market?

[Don Corleone]

Woo hoo! 100% agree with me! China should be granted some protections against currency speculation, but the values of their goods and services should be subject to market forces. I knew you guys were pretty bright and reasonable.

Edit:
Okay, who's the wiseguy that posted yes to every answer??? ~:)

[Proletariat]

I said no, they should follow the usual rules. Mark this up to tabula rasa. I'll explain later.

[Crazed Rabbit]

No! They already siphon off the America economy with all their counterfitters ad good flooding! If they want to compete, then fine, but they have to play by the same rules. That is, I don't care how much they pay their workers, as long as real market forces are doing it. Of course, it seems unlikely, though possible due to their increasingly liberalized economy.

Crazed Rabbit

[sharrukin]

Yeah isn't that Alan Greenspans job as Chairman of the Federal Reserve to regulate bank policy and influence U.S. monetary policies? Not that he would do so in a way that would be beneficial to the American economy. ~:rolleyes:

[Don Corleone]

Yeah isn't that Alan Greenspans job as Chairman of the Federal Reserve to regulate bank policy and influence U.S. monetary policies? Not that he would do so in a way that would be beneficial to the American economy. ~:rolleyes:

Well, interesting point, but he does it by manipulating our own dollar availability, not by artificially tying it to foreign currencies. What if we decided to do something that would really screw the Chinese (and arguably, ourselves as well) and did the same thing, define a dollar to be 4 Yuan?

[discovery1]

What if we decided to do something that would really screw the Chinese (and arguably, ourselves as well) and did the same thing, define a dollar to be 4 Yuan?

They which drop the ped to the $ and only peg it to the euro, I think.

I think the value of their currency should be decieded by market forces, at least as much as the dollar is. Of course, 'should' doesn't really mean anything. All's fair in love and war.

[sharrukin]

Well, interesting point, but he does it by manipulating our own dollar availability, not by artificially tying it to foreign currencies. What if we decided to do something that would really screw the Chinese (and arguably, ourselves as well) and did the same thing, define a dollar to be 4 Yuan?

The Chinese are a growing power and are acting in their own best interests just as the Americans as an established power use the status quo, which they largely established to promote their best interests. IMO the Americans should do something that would really screw the Chinese despite the costs because like the Japanese in the 50's and 60's they are on the rise. The Americans and Japanese will be the ones to surrender market shares and military supremacy to the Chinese in the long run if things continue as they have been. Free trade benefits all nations but it does not benefit all nations equally.

[bmolsson]

Yuan is not a currency. It's only a political tool for the oppressive regime to keep the population where they need it. Talking about it as a currency is totally meaningless.......

[doc_bean]

They can do whatever they want with their currency, that's every nation's right (except the Euro ones), as long as it doesn't violate any other agreement.

It might not be in our, or even their best interest though, but that's for them to decide.

[Paul Peru]

They can do whatever they want with their currency, that's every nation's right (except the Euro ones), as long as it doesn't violate any other agreement.

It might not be in our, or even their best interest though, but that's for them to decide.
Yup, they are free to set the value of their Yuan to whatever suits them if they're willing to accept all the economical consequences. (unless I'm clueless about some binding agreement they have to let it float)

[Don Corleone]

Nobody can actually force them to properly value their currency. However, by keeping it artificially low, they make their goods appear cheaper on the world market. Example: calculators. Let's say a factory in the US manufactures calculators and charges $5.50 wholesale for them. A Chinese company makes the same calculator and charges $4.00. Obviously, the calculator vendor chooses the Chinese model. This means dollars start pouring into the Chinese economy. If they did nothing, it would make the value of the Yuan rise with respect to the dollar, so the next time you do the price comparison, maybe the Chinese calculator is (hasn't changed it's price in Yuan, but the Yuan is now worth more dollars) $5.00. Not as good a deal, but still preferable. Over time, the economic system will balance itself, economies that are large exporters see their currencies rise, and economies that are large importers see their currencies fall. This has the net effect of eradicating trade imbalances over time.

The Chinese government, wanting to keep dollars flowing into it's economy, has said "don't pay any attention to how much the calculator costs in China. Whatever the price is currently in the US, we will keep the same 50% discount". Now, this has the effect that their employees and materials vendors aren't actually accumulating wealth from the transactions. Why? Because since the dollar is devalued, and the Yuan is forcibly tied to the dollar, the Yuan is devalued as well. The calculator factory worker now needs to spend more Yuan to buy his weekly groceries. But if your goal is to siphon wealth off of another economy, not necessarily create it within your own, this is a sound strategy.

The US can't do anything about how China values the Yuan, directly. But what they can do is recognize the practice as giving Chinese manufacturers an unfair trading advantage and put sanctions on them accordingly (import tariffs are increased so the calculator vendor sees the true cost of both calculators). The Chinese went bananas when Snow (US Treasury secretary) suggested that was on the horizon, and without using the actual words, implied that they would consider any changes to our import duties an act of war.

Should be interesting to see how this one plays out... Will the US let China maintain an artificial siphon of wealth on it's economy, because they're afraid of the political rhetoric coming from Beijing, or will they attempt to take measures to correct the problem, and risk conflict. Hard to tell, as the Chinese tend to use blustery statements with things like this. They described the spy plane (from the Hainan Island incident back in 2001) as the lead plane in a vanguard of an ariel assault and they were prepared to defend the homeland to the last man (even though the incident took place in international airspace).

[discovery1]

The Chinese went bananas when Snow (US Treasury secretary) suggested that was on the horizon, and without using the actual words, implied that they would consider any changes to our import duties an act of war.

They did what? Then we should definetly place tariffs on their goods in retaliation, soy farmers be damned.

[doc_bean]

Didn't the US recently put some more import quota's/tariffs in effect which would (mostly) hurt China ? There's a constant 'trade war' going on between the US/Europe/China. I don t think China is doing anything beyond what the other parties are doing,

Now the third world countries in africa and south america are the ones that are really getting screwed over again and again,

[Don Corleone]

Actually, no the average Chinese worker is getting screwed. He's watching his purchasing power get eroded so that his government, and some American manufacturers that set up shop in China can get rich.

And you can't equivocate a normal trade dispute with this whole currency issue. It's an apples & oranges debate. What China is doing is long term dangerous for the US, but painful for their own people.

[LittleGrizzly]

Actually, no the average Chinese worker is getting screwed. He's watching his purchasing power get eroded so that his government, and some American manufacturers that set up shop in China can get rich.

basically what all countrys had to go through first, except not nessecarily american manufacturers

[Don Corleone]

You're being deliberately obtuse now.

Most other countries DO NOT go through this. Usually, an Industrial Revolution means more disposable income for the average worker, not less.

[LittleGrizzly]

You're being deliberately obtuse now.

Most other countries DO NOT go through this. Usually, an Industrial Revolution means more disposable income for the average worker, not less.

breath deeply ... i wasn't being obtuse (i think) i mean the average worker got screwed and the owners got richer

[Don Corleone]

I'm not fuming, my breathing rate is fine.

No, the average worker saw their purchasing power and their standard of living increase. The only place this is being retarded is in China. I don't think you understand economics enough for us to continue this discussion. Or maybe I don't, who knows.

[doc_bean]

It's a ten year old system, China has evolved a whole lot in that time, it's not unusual for developing countries to link their currency to the dollar as a sort of guarantee for investors.

A few countries have gone through serious crisisses when they failed to maintain the standard. Now what is happening in China is exactly the opposite, which puts everyone in a difficult position.

If China just lets the standard go, the Yuan would rapidly increase in value and it would be a catastrophe for their export, and hence, their economy. When the Euro started rising against the dollar the European policy makers and industrials were all pretty worried, and this rise is often blamed for the slow economic growth in Europe over the last few years (let's not get into that). If China would let its currency float, the effects would probably be much worse.

I don't think the People's Party is deliberately trying to screw the people, they are looking out for their country's best interest, and a floating currency is not a good idea imho.

Maybe a slow 'adjustment' of the dollar/yuan rate to a more realistic level would provide an answer. The main problem remains, China is primarily an export country (afaik, statistics that prove me wrong are welcome), they benefit from a 'weak' currency. Only through proper use of trade sanctions can we 'persuade' them to alter the level, which is what we (US and EU) should do.

[BDC]

Well apparently the Chinese economy is relying on the country's foreign currency reserves anyway, and when they give out it's all going to go pear shaped. Hence India being a better investment. Certainly whilst I was there it looked as if China was going to have to change drastically if the growth was to continue, it's getting to the point where the professional is rich enough to want more rights etc, things could get nasty if they don't get them. You probably don't want to piss off a couple of hundred million people who each have a pretty significant buying power.