Hello J6P, <<What are the other currencies?
EURO,YEN,...,GOLD?>>
Now I think I know more, the answer may be yes, yes, and definitely no, officially.
Policy wise, it may be yes, yes, and sort of, as in get the people to hold the gold and store at the bank, so that should it become necessary to confiscate, it would be less troublesome one day's work.
The problem is, no one seems to know the basket weighting, and so we have a delicious suspense. That there is a formulae I have no doubt. How the formulae will be used will no doubt be more art than science :0)
<<J6P will have to pay more at Walmart?>>
Yes and no.
Yes, relative to his own housing equity.
No, or perhaps no, relative to what a dollar can buy, unless prices rise, not because of currency rate shifts, but because of absolute price increases.
However, prices of China manufactured items may fall further still in USD terms, because ...
I got asked this question, "Is the 2% lip service to the Americans or part of a longer set of increases. I think it is lip service for now, and 2% will have little impact, most of it psychological."
My pondering back on February 16th, 2004:
Message 19813653
QUOTE
On the issue of China RMB, my current feel is that 'the Blue Nosed Dolphin is not in the Water' - Jay signals by rubbing nose in sideways motion with finger, as opposed to up, or down :0)
(a) They will keep in mind reform, growth, and stability
(b) So there will likely be no sudden moves even as they feel they need to reform the exchange regime in the context of overall reform, safeguard and modulate growth, but all in the context of maintaining stability (not too hot, and not too cold)
(c) They will likely continue to work on expanding hedge instruments availability, add to forex market liquidity, restructure banks, ... all the stuff that needs to be done before free-float
(d) They will likely not expand the RMB trading band now because should they expand the band, given market heat and expectation, even more hot money will flood in (trade surplus is actually just 25 billion with whole world including US, and rest of forex buildup is FDI flow, plus hot money)
(e) They will likely continue to control FDI inflow, encourage FDI outflow, modulate export, increase import, rather than fiddle with forex rate itself
(f) They will likely continue to expand investment to soak up savings and encourage overseas investment (most likely via HK market) to relieve money pressure
(g) The speculators may end up disappointed if they continue with the bet that RMB will be revalued soon (within 2004), and in the longer term (within 5 years), the RMB will most likely tank.
On the event that China is now in trade deficit, a bit of it is due to front-loading of export at the end od December by companies to beat the lowered still VAT rebate on export (I think the export VAT rebate will disappear over the next 2 years) which has the same effect as revaluation without as much potential downside.
But, at the end, I feel that China can always do something unexpected, as in the case of using forex reserve to recap banks in 2003, and uniting the dual-currency regime back in 1993 seemingly out of the blue (although that move was apparently worked out 4 years before and just held back for the right time).
UNQUOTE
and my figuring on June 18th, 2005:
worldmarket.blogspot.com
QUOTE
Update on the RMB
I was asked yet again on the issue of RMB re-valuation, and I answered so . . .
How likely is RMB revaluation? What its economic and political impact will be?
The Chinese government tries to chart a course for China’s economy that maintains STABILITY, GROWTH, and TRANSFORMATION;
China is the most dynamic and wild economy in the world, with much to do (300 years of pent-up demand, infrastructure, social security, etc) and not a great deal of money to do it with;
China's global trade is in balance for the size of its economy;
China's USA trade is way out of balance, but mainly due to US pull as opposed to China push, due to surplus of Chinese savings in relation to capacity to immediately make use of the savings (the economy is growing fast already) and to USA lack of savings in relation to consumption;
The only pressure on the RMB to revalue is US politics, not economic fundamentals or financial soundness, at least not yet;
There is likely to be no upside for China in revaluing its currency (i.e. no plus for STABILITY, GROWTH, and TRANSFORMATION), and therefore a substantive RMB revaluation is unlikely, especially given that global balance will not result from RMB revaluation;
The RMB will likely be 're-pegged' to a basket of currencies in relation to trade volume and such, and perhaps re-valued upward by 5%, all within the next 6 months, but then, given China's needs, RMB may then suffer from devaluation tendencies;
Our guess is that should the RMB be floated, it will tank downward (need for printing, financial system soundness, outlet for surplus domestic savings, etc); and
Remember, the Chinese invented both the paper money as well as the printing press.
UNQUOTE
Now that I am 2 for 2, I try again:
- the re-peg to a basket of currencies, as opposed to re-peg against dollar float will now position the RMB to crash against the USD, as the Euro/Aussie/Loonie/Yen crumbles against the USD due mainly to the unwinding of the USD carry-trade that had been put in place over the past 36 months by all the speculators and hedge funds (borrow USD and buy everything else)
- The problem with every carry trade is that they need to be reversed at some point, and since USD loans can only be repaid with USD cash, the rush for dollar is now on, and so, unwell as the US manufacturing economy is, and unhealthy as the US housing bubble will be, the USD does up, not down, in line and not against the bloated deficits and rising inflation (forget that CPI number, it is a lie)
- As the USD rises against China's undisclosed basket weighting of other currencies, the RMB will fall against the USD, in a 'free market' manner
Just a guess.
Remember, we are in Last Man Standing Death Match Tournament ala Post-Bubble Competititive Devaluation.
The coming episodes should be exciting.
Chugs, J |
