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This post was edited by abramicus at 2015-11-7 19:22|
Factoring the increased volume of trade between the three Asian economic powerhouses, the demand for the Yuan, the Yen and the Won is likely to increase, at the expense of the dollar, euro and pound.
Yellen just said what has been all too obvious to me for a long time now, which is that the PBOC has been selling US treasuries to generate the US dollars that it uses to buy up Yuans, in the mistaken hope that by keeping the Yuan overvalued against the US dollar that foreign capital will stay longer in China. This is the kind of reasoning that one cannot accept at all. How can spending $1 trillion dollars to keep $500 billion dollars inside China be cost-effective? There is a scam behind this nonsense, but notwithstanding this inherent weakness in China's economic structure, the demand for the Yuan from Japan and South Korea is bound to increase as a result of the trilateral FTA.
As long as China is beholden to the big fat lie that it needs to keep the Yuan overvalued, while hemorrhaging 40 billion dollars of its currency reserves each month to keep up the facade, it will be only half as strong as it should have been with a more rational Yuan exchange rate of say 6.50 Yuan per Dollar.
While this weakness may be compensated for by its recent diplomatic tour de force, the overvalued Yuan has a persistent negative effect on the economy that could wipe out eventually all the gains of the FTA. Not only is the overvalued Yuan a strategic disaster for China, it is also a tactical blunder, because all Yellen has to do to up-end the FTA is to raise the interest rate, let the dollar appreciate, force China to further appreciate its Yuan against the Yen and the Won, and turn the FTA into a huge trade deficit for China, which forces China to reduce its expenditures, to contract its consumption, while its production continues to plummet due to even more severe overpricing of Chinese products in dollars abroad, more so in Yens, Wons, Euros, and Pounds, cutting China's legs at its knees.
Thus, diplomatic brilliance, but unfortunately, nevertheless, economic sabotage from within by its own monetary policy makers.