Hi Russ, <<Because the most important aspect now is to be able to get all these scarce goods (that are priced in USD) as cheaply as possible.>>
As the RMB is not a hard currency, raising its value will serve only (a) raise USD/Yen/Euro cost for export goods, (b) suck in more speculative money that will do mucho damage, (c) reduce export derived revenue, and (d) encourage domestic consumption of imported goods, but (e) will not lower the cost of imported commodities in any sustainable fashion because (point 1) the price of such commodities will rise in any case, and (point 2) China will have less hard currency to buy the same commodities over time.
Should China use its USD to buy commodities now, in the form of fields and veins, and later, should the RMB revalue upward (however unlikely), the RMB cost of the imported commodities from owned fields and veins would be lower in any case, even if there might be a capital loss on the purchase cost of the fields and veins.
Should China re-peg the RMB at a higher rate, and still have to come up with the USD/Yen/Euro to buy the fields and veins of commodities, the RMB cost in a mathematical sense has dropped, but there is less hard currency to buy stuff with.
Aggregation of renewable production, knowledge, flow of sustenance mean everything, and exchange rate, almost nothing, especially as there are so many levers and buttons to manipulate. Exchange rate should be left to the market, and China’s trade balance indicates the RMB rate is not too hot, not too cold, just right, until not, but not before.
The trends will continue, one country to provide soldiers, another to shovel financing, a third to make available manufacturing labour, and apparently, a fourth to supply services.
All is in balance and all is well, with each absorbing the pain of the scheme, and to enjoy its benefits, until change arrives. Manual intervention will do nothing except screw things up with TwoAPuc (definition achamchen.com )
Inflation? My understanding inflation has its plus signs, as in easier bank solvency, happier peasants, satisfied home-owners, ... and inflation in times of balanced trade will tend to sink the currency, not raise it per a bunch of US officials reckoning.
To believe that China's competitive advantage springs from a cheap currency invites easy solutions, just drop one's own currency by printing massively, delivered with helicopters ... but, oops, printing raises the nominal cost of land and labour, which destroys competitiveness in some ways.
The world will again learn that money should be kept as is, not to be experimented with, or turned up or down like a water tap.
Chugs, Jay |
