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This post was edited by abramicus at 2014-9-6 22:21|
HOW THE REVALUATION OF THE YUAN THREATENED TO TAKE THE WIND OUT OF THE SAILS OF XI'S INTERNATIONAL DIPLOMATIC INITIATIVES
When the PBOC revalues/upvalues the Renminbi against the US Dollar, the signal that the market is getting is simply "How many US dollars is China willing pay for a Yuan?" The simplistic and sophomoric thinking being peddled by the Western-brainwashed Economic Hitmen is "If China is willing to pay more dollars for each yuan, then other countries would be more willing to accept the Yuan as payment for China's imports from them." The unfortunate fact of the matter is that this statement is true only if (1) China will continue to pay more dollars for the yuan in the future, and (2) if China has enough Dollars in its reserves to pay for the Yuans. And, anyone can see that China's Dollar Reserves, though as much as 3.2 Trillion Dollars worth right now, is a drop in the bucket of the entire Yuan supply or the Dollar supply circulating in China and the world. In short, if everyone wanted to exchange their yuans for the US dollar, the PBOC would run out of US dollars in a few short days. And therefore, nobody is banking on this empty pledge implicit in an arbitrarily determined exchange rate that overvalues the Yuan versus the Dollar, good for the day only.
Instead, the real reason why another country would want to hold the Yuan is if the Yuan can be used to purchase goods and services that it needs from China, PROVIDED THAT THE PRICE OF SUCH CHINESE GOODS AND SERVICES ARE CHEAPER THAN THEIR EQUIVALENTS ABROAD.
The sound and stable way to promote the Yuan as a future currency reserve of the world is in fact to devalue the Yuan, such that all Chinese goods and services, payable with Yuans, are cheaper than their equivalents abroad.
With the promise of exchangeability of their Yuans for goods and services that China is selling at a bargain to them, foreign countries would have to have the Yuans as part of their reserve currencies RIGHT NOW, BEFORE CHINA DECIDES TO REVALUE THE YUAN UPWARDS THAT WOULD THEN MAKE CHINESE GOODS AND SERVICES MORE EXPENSIVE THAN FOREIGN EQUIVALENTS, IF SUCH COUNTRIES WERE TO CONVERT THEIR DOLLARS INTO YUANS AT THAT TIME, SOMETIME IN THE FUTURE.
The best time for any foreign government, bank or business to accumulate Yuans as their reserve currency would be when the Yuan has devalued to the point that everything they need or want from China now and into the future, would in effect be available to them as a discounted price.
THUS, IF INDEED THE PBOC IS TRULY TRYING TO MAKE THE RENMINBI A FUTURE RESERVE CURRENCY FOR ITS TRADING PARTNERS, THEN THE PBOC SHOULD DEVALUE THE YUAN WAY BELOW ITS SINGULARITY VALUE OF 6.150 TO SOMEWHERE CLOSER TO 7.000, AND EVERYONE WOULD WANT TO HOLD YUANS AT THAT EXCHANGE RATE, CONVERTING THEIR DOLLARS INTO YUANS BY REFUSING TO ACCEPT PAYMENT IN DOLLARS FROM CHINA, BUT ASKING TO BE PAID IN YUAN EQUIVALENTS AT SUCH A DEVALUED EXCHANGE RATE OF THE YUAN, WHICH IS PRECISELY WHAT CHINA WANTED TO BEGIN WITH.
DEVALUATION OF THE RENMINBI MAKES CHINESE MANUFACTUIRES CHEAPER THAN FOREIGN EQUIVALENTS, FULFILLING THE PROMISE THAT FOREIGN COUNTRIES ACCEPTED WHEN THEY INSISTED ON BEING PAID IN YUANS, RATHER THAN DOLLARS. THIS BECOMES A VIRTUOUS CYCLE, WHERE THE DEVALUATION OF THE YUAN BECOMES THE IMPETUS FOR FOREIGN COUNTRIES TO WANT TO HOLD MORE YUANS, BEFORE THE YUAN REVALUES UPWARD IN THE FUTURE FOR ANY REASON. THE END RESULT IS THAT THE YUAN BECOMES AN INTERNATIONAL RESERVE CURRENCY, NOT BECAUSE FOREIGN GOVERNMENTS ARE AFRAID OF CHINA EMBARGOING OR INVADING THEM FOR BEING UNDEMOCRATIC AND NEEDFUL OF A REGIME CHANGE, BUT BECAUSE CHINA IS THEIR FRIEND IN TIMES OF NEED, AND CAN GIVE THEM MORE BANG FOR EVERY BUCK THEY HOLD, PROVIDED THAT BUCK IS DENOMINATED IN YUANS.
Thus, the current policy of the PBOC in revaluing the Yuan upwards against the US dollar, not only is unnecessary to China's goal of the Yuan becoming an international reserve currency, it is detrimental and obstructive to such a goal, as foreign countries can see that holding the Yuan serves no benefit to them, as Chinese goods and services, even in China, but also outside of China, are more expensive than their foreign competitors, when paid by them even in Yuans, or in Dollars. Who wants to hold a currency that makes every product produced by that country more expensive wherever they are sold, within or without that country? Nobody!
TO MAKE THE YUAN AN INTERNATIONAL RESERVE CURRENCY, THE PBOC MUST DEVALUE THE YUAN FURTHER TO NEAR 7.00 YUANS/DOLLAR, AT WHICH POINT, ALL CHINESE PRODUCTS AND SERVICES BECOME AFFORDABLE (BECAUSE CHINESE PRICES WILL BE LOWER THAN ANYONE ELSE'S), AVAILABLE (BECAUSE CHINESE FACTORIES WILL BE MULTIPLYING), AND ACCESSIBLE (BECAUSE BULK TRANSPORT WILL BE EVEN CHEAPER AS THE TRADE VOLUME WITH CHINA INCREASES).
TO MAKE CHINESE GOODS AND SERVICES AFFORDABLE, AVAILABLE, AND ACCESSIBLE IS CHINA'S SURE TICKET TO A TRIPLE-AAA RATING AS THE NEXT INTERNATIONAL RESERVE CURRENCY.
When Xi travels to the capitals of foreign countries, he is backed up by the economic power of his country, China, and his pledges of investment, trade or aid, always denominated in Yuans, lose their punch, when other countries see China's PMI dropping, GDP growth rate barely hanging by a thread to its self-acknowledged "minimum 7.5% GDP annual growth rate", all of which hindrances to his diplomatic initiative can be traced DIRECTLY to the PBOC's unilateral revaluation of the Yuan, in the pretense that it is necessary to make the Yuan the future international reserve currency (which it is actually making impossible), to increase China's gold reserve (which is totally unnecessary because China is paying for its gold with US dollars, not with Yuans anyway), or to expand China's domestic market (which it actually shrinks instead, because Chinese manufactured products and goods become more expensive than foreign products, both domestically and internationally). The firm and farcical policy of the PBOC to revalue/upvalue the Yuan can therefore only be a Trojan Horse, like the Stuxnet virus, used to wreck the engine of China's growth, which is its manufacturing sector, the basis for its currency becoming of international reserve value, and the basis of its diplomatic influence on countries far and near.