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This post was edited by abramicus at 2014-11-24 07:53|
HOW SHOULD THE RENMINBI ACHIEVE INTERNATIONAL RESERVE STATUS?
1. Traditionally, an international reserve currency is established by conquest, forcing the defeated country to accept its paper currency in exchange for its natural resources, goods and services, by imaginary association of such currency with a weight of gold, even if that is not really true. Once enough countries, especially those producing universally needed commodities like oil, accept such a currency as payment for its goods, other countries have no recourse but to also accept such fiat currency. Conquest, however, is the basis for the majority of international fiat currencies. Fiat currencies established by conquest must be valued higher than the currencies of the countries that were conquered or forced to accept its currency, in order to extract the maximum benefit of its conquest.
2. Breaking with precedent, China nearly became an international reserve currency by means of what was once called the "China Price", which makes everything made in China affordable for even the poorest of nations, creating a demand for its currency that is used in purchasing its goods and services. China's currency exchange rate had been accused of being manipulated and devalued by the PBOC, when the reality is that China's currency was undervalued because the exchange rate of the existing international reserve currencies were set by these countries artificially higher than is justified by their productivity. That is based on their self-interest, to get the most goods and services for every unit of currency they issue. The demand for Chinese currency came therefore from its being the lowest cost producer, and China was the lowest cost producer because it had the largest population in the world, making labor very cheap. Labor is cheap, not because of its lower exchange rate, nor because of any PBOC manipulation, but simply because labor is in abundant supply in China. In the end, it was the power of cheap labor due to its large population that put the Yuan at the forefront of international currencies that everyone needs in order to buy Chinase products with.
China nearly clinched its position as an international reserve currency powered by its inexhaustible and renewable manpower resource, until some Western Economic Hit men put a stop to this unstoppable march of the Renminbi into the heart of the international currency regime. Their logic goes like this. Why should Chinese workers be paid less than Western workers? Why should China's Renminbi be exchanged 7 Yuans for 1 Dollar, when if it were 6 Yuans to 1 Dollar, each Chinese consumer could buy more foreign products? If no reason to, then the PBOC should do everything to revalue the Yuan to 6:1 or even 5:1, until the Yuan becomes more expensive than the dollar, and we can buy up everyting that Westerners could buy with less and less Yuans.
The answer to this fallacy takes some serious thinking.
First, China cannot sustain its demand that other countries pay more in their currencies for every Yuan China issues, simply because China did not acheive its high exchange rate status by virtue of conquest, and will not resort to conquest to allow itself the right to print money that others MUST use on pain of regime change, because they are not "democratic enough according to China's characteristics".
Secondly, given that China cannot demand a high value for its currency by dint of conquest or threat of regime change, it can only do so by using its hard earned foreign cuurency reserve to buy up its own Yuans in the currency markets, which is stupid, because all China gets back for its hard earned dollars are paper and ink it could have supplied for 0.001% of the cost of the dollars spent to buy them with, and which is also futile, because the money supply required of an international reserve currency that is used in global trade, banking and investment is far in excess of the 4 trillion dollars that China has at its disposal to buy up its Yuans with, and long before China achieves its status as an international reserve currency that every country can use, it would have run out the dollars needed to support its exorbitant exchange rate, at which point, the whole edifice falls back down with a vengeance, and the Renminbi will be forced to devalue far below its current exchange rate, allowing foreigners to put the yoke of foreign-currency-demoninated debts on the neck of the 1.3 billion people of China, and to snap up its productive assets such that all equity gains go to them, and are not retained as domestic capital by which the next China Miracle can be grown.
Therefore, I challenge any economist to prove in these pages that the current policy of the PBOC to revalue the Yuan ever higher will lead to China's Renminbi becoming the next international reserve currency. And if this cannot be proven, then the PBOC has a solemn duty to devalue the Renminbi to the point that Chinese products are no longer overpriced in dollars abroad, and no longer overpriced in Yuans inside China, allowing BOTH international consumption AND domestic consumption TO CONTINUE TO PROPEL THE GROWTH OF CHINA'S GDP AS IT SHOULD BECAUSE OF ITS EXTREMELY HIGH COMPARATIVE ADVANTAGE IN ITS RENEWABLE AND CONSTANTLY IMPROVING QUALITY OF ITS MANPOWER RESOURCE.