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This post was edited by abramicus at 2014-8-12 17:10|
nowdodgethis Post time: 2014-8-12 15:39
What is the rationale behind PBOC's decision?
A full disclosure of all those that are part of the d ...
THE GARDEN PATH TO SELF-DESTRUCTION IS PAVED WITH FALSE EXPECTATIONS OR INTENTIONS
There is an unspoken "explanation" that on closer scrutiny explains nothing at all, and appears to be a mere excuse for the revaluation of the Yuan in the past 3 years, and it is that "Shhhh, China is positioning itself to get the Yuan to replace the US Dollar as the reserve currency of the world, and therefore China must revalue the Yuan until it becomes acknowledged by the international banking community as the logical successor to the US Dollar." The truth is that "international reserve currency" status cannot be bought, as no country can have as much money as the issuer of the current international reserve currency, and therefore, can never have enough currency to buy it out. If China really wants to make the Yuan THE international reserve currency, it has to establish military bases all around the world, so that it can remove governments that refuse to accept the Yuan as payment for these country's exports. That is why all this grandstanding of revaluing the Yuan "in order to replace the US dollar" is not only untrue, but also is more likely a smokescreen to cover up this massive loss of China's wealth.
PROOF #1 WHY REVALUING THE YUAN CANNOT DISLODGE THE DOLLAR AS INTERNATIONAL RESERVE CURRENCY:
The ammunition China uses to revalue the Yuan is its foreign currency reserve, estimated at 3.5 Trillion dollars in aggregate, of which only 1.3 Trillion are currently denominated in US dollars. Once this ammunition is used up, the value of the Yuan will drop, as there is nobody else out there willing to spend their hard-earned US dollars to buy the Chinese Yuan, at say, a stratospheric 5 Yuan/Dollar exchange rate. Knowing this, foreign central banks would rate the sustainable Yuan/Dollar exchange rate based not on how many dollars China is willing to pay for its Yuans, but on how many dollars are left in China's foreign exchange reserves that it can use to buy up Yuans with, to keep the price of the Yuan high. Over time, the amount of reserve dollars that the PBOC holds would be thin enough that a consortium of global currency speculators, in cahoots with some central banks, would amass enough credit and cash, from banks and brokers, denominated in Yuans, much of which may be borrowed from Chinese or Hong Kong banks, as in the Asian Currency Crisis of 1997, such that they could then sell these Yuans into the world markets, accelerating the depletion of China's foreign reserves, at which point, in order to carry on necessary commerce and trade, chief which being its ability to import oil, food, and raw materials, China would be forced to reverse its actions, and begin buying US dollars to pay for its imports, which then causes the Yuan to crash from its stratospheric level of say, 5 Yuan/Dollar, to 15 Yuan/Dollar. Not only would China be impoverished and robbed of all its dollars, with nothing to show but a mountain of Yuans it paid for with its dollars that it could have just printed on its own, but China would go into massive dollar-denominated debts, as that would be the only way international creditors would "sell dollars" to China, with the interest rate attached to these loans serving as their insurance against future devaluations of the Yuan, and this interest will be hefty, possibly reaching double digits, as in the case of Greece, Ireland and Spain. Since China does not have enough foreign currency reserve to hold the Yuan at the high exchange rates it claims to want it to reach, in order to impress other countries to use it as their reserve currency, with its 1.3 Trillion Dollars, or even 3.5 Trillion Dollars being a drop in the bucket of the US money supply, this "reason" is not valid, and worse yet, if pursued, will lead to bringing China down to her knees again, wiping out all the gains of the economic reforms since Deng to the present.
PROOF #2 WHY REVALUING THE YUAN CANNOT MAKE IT THE NEXT RESERVE CURRENCY:
If the strength of the Yuan is based on the productivity of the Chinese economy, revaluing the Yuan will first of all strangle all Chinese manufacturing, as the events in the past 1-2 years have shown, with China's GDP growth rate having dropped from 10% to 7.5%, i.e., a loss of productivity of 25%, so how can further revaluation of the Yuan by using China's dollars to buy its own Yuans (nobody else is willing to buy the Yuans with their dollars at such high rates) , increase the value of the Yuan to foreign central banks which can see in the monthly statistics that China's productivity, the basis for the valuation of the Yuan, is trending in the opposite direction???
PROOF #3 WHY REVALUING THE YUAN IS COMPLETELY IRRELEVANT TO MAKING IT AN INTERNATIONAL RESERVE CURRENCY.
An international reserve currency in the modern world is also the ULTIMATE FIAT CURRENCY that every country must accept in exchange for its goods and services. The key word is FIAT. FIAT is political power, and political power always grows out of the barrel of the gun. How can China issue any FIAT currency that other countries HAVE TO accept, if it does not have enough military power to threaten them with unpleasant things like regime change because they have no human rights? The whole argument that revaluing the Yuan makes the Yuan more like the dollar is absurd. Dressing yourself like a king, no matter how similar your appearance may be, does not make you a king. It is in fact so expensive to do, that you will squander all your hard earned savings to do so, while the king could just wave his scepter and all his subjects will bring him not just the expensive clothings and furs he needs, but everything else besides that the king-impostor would have already spent away and be unable to buy henceforth.
DOES IT TAKE SUCH KINDS OF ILLUSTRATIONS TO SHOW THAT THE ECONOMIC THEORY BEHIND THE HEADLONG REVALUATION OF THEY YUAN TO MAKE IT LOOK LIKE THE DOLLAR IS, IN FACT, STUPID?
iN THE END, THE WORLD BANKING COMMUNITY WILL WHISPER, THE YUAN EMPEROR HAS NO CLOTHES!!!
THE SOLUTION, FORTUNATELY, IS VERY EASY AND SIMPLE - DEVALUE THE YUAN BACK TO 6.20, AND POSSIBLY ALL THE WAY UP TO 7.00 YUAN/DOLLAR - AND CHINA WOULD BE BACK ON TRACK TO BEING THE MOST PRODUCTIVE COUNTRY AGAIN, AND THE FASTEST GROWING ECONOMY IN THE WORLD.