Yes, it was a rhetorical question. However, there are some additional complexities.
First, it is not in China's nor in Japan's interest for a sudden devaluation of the dollar to occur. The capital outflows would traumatize the US consumer and kindle a political fire inconsistent with China's style of international relationships. So I take it as a foregone conclusion that any revaluation will be controlled. In fact, it is easier to revalue the renminbi outside of the chaos of a forex, interbank market.
Second, the appreciation of the renminbi has to be weighed against the decline in cost of commodities priced in dollars (ie, all of them). China, but not Japan, will also have to balance the ongoing risk of retaliatory tariffs against at least giving a semblence of fairness to their currency.
Thirdly, it is exactly the poor transparency and closed nature of the Chinese markets that need to change. Front running a position because of a government announcement sounds like easy money, but it is a moral hazard the consequence of which is distrust. Furthermore, any such frontrunning would be within the managed appreciation plan that I mentioned above. So, although all US debt owners would share the currency risk, eventually China would have to share the risk of private Chinese investors/fronrunners bailing en masse on their dollar denominated assets. (I guess I can imagine a scenario where the trade is both frontrun and it is managed on the downside? Again, we get back to the trust issue)
As for peasants converting US dollars into gold, I'm not sure that even if a great majority of dollars were converted that the amount of gold reserves in China would be comparative to the US's or Europes. But that's beside the point, China doesn't need gold for its currency to resist depreciation. Capital inflow alone will stabalize the rnb at a much higher level against the dollar.
"folks do not often get what they want, they must take what they deserve"
Explain this. |
