US manipulates currency market (1 Viewer)

[Meryl33]

USA IS trying to manipulate the currency market by forcing China to revalue.

The US accuses China of currency manipulation. Yet, as the article below clearly demonstrates, the RMB is NOT undervalued.

China can't move further on the yuan

 

[Not-That-Bright]

I saw nothing there that proved to me their currency isn't undervalued...

 

[loquasagacious]

Meryl did you miss these bits:

For months, the United States pressed China to revalue its currency, the yuan, and China finally responded on July 21 by moving to a managed float system with reference to a trade-weighted basket of currencies.

Chinese currency is controlled, der.

Continuing to bolster labor-intensive production and exports is the only viable means for China to absorb its surplus labor and improve rural living standards. To do so, China must keep the yuan's effective exchange rate competitive for the foreseeable future.

China is undervalueing the yuan. However has reason to.

 

[Rafy]

The Chinese banking system is insolvent. If they float the Yaun, you'd have a banking system collapse, and you'd say goodbye to the 10% GDP growth.

 

[seremify007]

If Yuan was open to true market force with no govt. intervention (the current managed floating peg still has limits to how much it can move in any one day as well IIRC) then the value would go up, and Chinese exports would go down the shoot... Sure they still have their cheap labour costs, but their growth would shrivel up!

 

[supercharged]

Who cares whether the currency is floated or not? There is no obligation for countries to have a floating currency. The US can start pegging its currency to another if it wants to as well.

 

[Rorix]

LOL @ this thread.....

Who cares whether the currency is floated or not? There is no obligation for countries to have a floating currency. The US can start pegging its currency to another if it wants to as well.

Ah, I am not suprised to see you here!

Fristly, China cares, and the world in general cares. Given that we've basically got everyone covered there, who doesn't care? There's no 'obligation' for countries to have a floating currency? Wow, so? Just because there's no obligation to do something doesn't mean it's not a good fucking idea!

On what level are you objecting? Surely not an economics standpoint?

 

[seremify007]

Well from an economics standpoint it could send a country into the ruins maintaining a peg which is overvaluing a currency- but in China's case.. something which isn't that common (undervalued currency) it's to their advantage in terms of globalisation and growth, but the people inside China have to suffer (weaker currency = less imports/buying power = lower standard of living).

 

[Meryl33]

China's policy validated.

Snow sees limits on yuan-policy demands

http://www.iht.com/articles/2005/10/18/business/snow.php


Countries have neither permanent friends nor enemies - only permanent interests.

Winston Churchill

 

[Rorix]

seremify: there's a variety of economic disadvantages from the undervalued currency - misallocation of resources, inflationary pressures etc.

This thread symbolises everything that is horrible about this forum now. It's a thread created JUST TO FURTHER the author's anti-American agenda, no-one on the forum really cares about discussing it.

 

[ND]

Who says noone's interested in discussing it?

The revaluation was only like 2%, and there are expectations of further revaluations. This means that demand for the currency increases as speculators want to take advantage of the future appreciation. So for the juan to remain level, there must be a chinese monetary expansion. This will reduce interest rates, and cause their already booming economy to further overheat, resulting in massive inflation whcih will cause an interest rate rise. The resulting slowdown will adversely affect the world economy.

Not good.

 

[ND]

Also, there's an interesting article regarding the US CAD in today's smh:

http://www.smh.com.au/news/business...ccount-deficits/2005/10/21/1129775961715.html

 

[seremify007]

Haha my economics train of thought isn't active atm... Eco is so far away =P

 

[Rorix]

Who says noone's interested in discussing it?

The revaluation was only like 2%, and there are expectations of further revaluations. This means that demand for the currency increases as speculators want to take advantage of the future appreciation. So for the juan to remain level, there must be a chinese monetary expansion. This will reduce interest rates, and cause their already booming economy to further overheat, resulting in massive inflation whcih will cause an interest rate rise. The resulting slowdown will adversely affect the world economy.

Not good.

I cite the thread as evidence. I can see that you, like me, want to get into the economic side of it, but not many posters on the forum (historically) are economically inclined, and there's no real alternative way to talk about it.

 

[seremify007]

Well I disagree with you then ND-

I think as the currency appreciates, more companies will try to invest locally before the currency becomes too strong and it becomes more expensive to invest there- I think that as a result of both foreign investors putting money into Chinese banks as well as the increased spending of the people inside as their currency gets stronger, to prevent a CAD developing (Chinese people like to be independent I reckon) the interest rates will continue to rise- obviously not to the point where it makes spending extremely expensive, but I think they are going to try to avoid the paradox of thrift which is prevalent in Chinese culture.

 

[seremify007]

Btw happy now?

oh and I'm Chinese so whilst I don't epitomise what a Chinese person is... I'm basing it on my family and my friends.

 

[ND]

Well I disagree with you then ND-

I think as the currency appreciates, more companies will try to invest locally before the currency becomes too strong and it becomes more expensive to invest there- I think that as a result of both foreign investors putting money into Chinese banks as well as the increased spending of the people inside as their currency gets stronger, to prevent a CAD developing (Chinese people like to be independent I reckon) the interest rates will continue to rise- obviously not to the point where it makes spending extremely expensive, but I think they are going to try to avoid the paradox of thrift which is prevalent in Chinese culture.

How would the currency appreciating increase the chinese local investment? The chinese income is in yuan, so an appreciation will not make their local investments more expensive.

Also, why would local spending increase? Imports would increase and exports decrease, cooling down the economy (and hence inflation). So there would be no need to increase interest rates, especially since doing so would put more upward pressure on the exchange rate.

You mentioned preventing a CAD. Firstly, china has absolutely nothing to worry about there, it's been running huge CAS's for ages. Also, the measures you suggested (such as raising interest rates) would actually reduce the CAS.

Note: i'm not chinese and don't know much about china, but i don't see how the chinese macroeconomy would function any differently to the others.

 

[seremify007]

Currency appreciating could lead to FOREIGNERS investing more heavily there as they attempt to beat the currency from rising too much- further pushing up the currency value as well as interest rates rising. If currency is stronger, then imports increase and that applies both to individuals (buying from o/s) as well as businesses which source inputs from o/s- interest rates may rise to prevent the economy from overheating. Whilst that'll definitely dampen spending, it is likely to lead to more foreign investment and like you said, will result in a further appreciation of the currency- but I think before that happens, the rates will come down again.

Chinese people, or Asians in general I'd generalise to say tend to save rather than spend (worried that something unexpected may occur) and are very different to Westerners in that sense- whilst spending is good, their reluctance to spend also ensures they have a large pool of domestic funds available for borrowing (which'll help keep interest rates lower and prevent currency appreciation)... as for CAD/CAS, I think China enjoys it's independence and anything which moves them closer to becoming reliant on other countries or a CAD is something they'd prefer to avoid.

Of course we don't know what the Chinese officials are thinking.... but that's my train of thought on the issue. I believe that there is a large difference between the thinking of Westerners and Chinese- with Western economies like we've studied, a fall in price should lead to proportionate increases in consumption of a good, but in Asia, the prices are already low; but people choose not to buy because they are either saving their money- or quite simply, they can't afford to buy it even with lower prices (I'm guessing you used China as a case study in which case you'd know about their average wages, etc..)

 

[ND]

Currency appreciating could lead to FOREIGNERS investing more heavily there as they attempt to beat the currency from rising too much- further pushing up the currency value as well as interest rates rising. If currency is stronger, then imports increase and that applies both to individuals (buying from o/s) as well as businesses which source inputs from o/s- interest rates may rise to prevent the economy from overheating. Whilst that'll definitely dampen spending, it is likely to lead to more foreign investment and like you said, will result in a further appreciation of the currency- but I think before that happens, the rates will come down again.

If the currency appreciates, interest rates will not need to rise because the reduced trade surplus would cool down the economy (as i mentioned before). In fact interest rates would fall as demand falls.

Chinese people, or Asians in general I'd generalise to say tend to save rather than spend (worried that something unexpected may occur) and are very different to Westerners in that sense- whilst spending is good, their reluctance to spend also ensures they have a large pool of domestic funds available for borrowing (which'll help keep interest rates lower and prevent currency appreciation)... as for CAD/CAS, I think China enjoys it's independence and anything which moves them closer to becoming reliant on other countries or a CAD is something they'd prefer to avoid.

I think China's CAS's are more due to the massive trade surplus than high savings rate. (though im sure it does contribute toward it)

Of course we don't know what the Chinese officials are thinking.... but that's my train of thought on the issue. I believe that there is a large difference between the thinking of Westerners and Chinese- with Western economies like we've studied, a fall in price should lead to proportionate increases in consumption of a good, but in Asia, the prices are already low; but people choose not to buy because they are either saving their money- or quite simply, they can't afford to buy it even with lower prices (I'm guessing you used China as a case study in which case you'd know about their average wages, etc..)

Nope i've never done a case study on China, and know nothing about thier microeconomy.
I can't understand how in China, a drop in price wouldn't increase demand for a good. If they can't afford to buy even at a lower price, then the market would set the price to both suppliers and consumers are happy.
Do you have any articles on this?

 

[Valeroso]

Japan's being tampering with the foreign exchange market for yeeeeeeears! But with the US posting an ENORMOUS trade deficit against China, I'm not really surprised why they're complaining.