Ron,
I'm not quite sure what you are saying, but it is a fact that all Asian Tigers(with exception of China), have taken some major hits to their currencies. They are allowing them to float and be controlled by market forces (some voluntarily, others not).
China set up an artificial peg and are holding it. Therefore China is competing with countries that suddenly are very attractive to the likes of the USA because the greenback is very, very strong against the fallen Asian Tiger currencies (That's one reason I'm going to vacation in Thailand!). Why should we purchase goods from China when we can get them much cheaper elsewhere? Of course I'm only talking about goods that are available elsewhere.
Yes, a devaluation causes inflation for the exact reason you stated. And, yes, if goods sold for export are priced in the exporting countries native currency, then it means less to them in monetary terms. The theory is, as you know, attempting to increase volume of exports to make up for the negative implications.
Remember, I don't personally have an opinion on what China is going to do. Probably depends on exactly how much damage is done to their economy and how long it stays damaged.
I do think that currency pegs are not a good thing. It postpones facing the music when necessary. China has to be competitive against their neighbors. It's a critical highwire China is walking on. An artificial peg makes the wire very thin.
>>It would also signify the bankruptcy of SE Asia.<<
Pretty strong statement. I don't know if I feel that strongly about it. But I am concerned. Now if more and more people come to grips with a devaluation, then IF it happens, it won't have as severe an impact(IMHO).
MikeM(From Florida) |
