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This post was edited by abramicus at 2014-12-14 05:12|
futsanglung Post time: 2014-12-12 17:04
Better still why not do as the majority of the worlds currencies do and let it find its own value. w ...
Ideally, that is the way the exchange rate should be set, is by the free market. But you know the players in the currency market are big boys who can sway the market, especially by ganging together, at times, such as during the 1997 Asian Currency Crisis that netted them a cool $1 Trillion Dollars of profits, not by making the market more efficient in seeking the true clearing price of the various Asian Currencies, but by causing the normal market mechanism to break down through targeted, relentless shorting of various currencies, such as the Thai Baht, and later, the Hong Kong dollar, that DISTORTED the clearing price because of an avalanche of sell orders, using Hong Kong dollars borrowed by the speculators from Hong Kong banks, chief of which was the bank that did not pay royalty to use Hong Kong and Shanghai as part of its name.
Currency manipulation is the rule, not the exception, and therefore, to ask China to allow the "market" to set the exchange rate of the Yuan, is like giving the keys of St. Peter to the devil.
On the other hand, there is at any one moment an ideal clearing price for every currency that satisfies the real supply and demand for it, which we can call the Ideal Market Price, that is different from the Actual Market Price.
For China, if the foreign speculators can be stopped from speculating (which is impossible), if China allows the market to determine the equilibrium price for the Renminbi, the exchange rate should be beteween 6.50 to 7.00 Yuan/Dollar, and because the PBOC is preventing the Yuan from devaluing it, in the mistaken notion that devaluation means "failure" of the current administration, China is paying through the nose for this pursuit of political vanity, if not outright economic treason, as the lost income to Chinese manufacturers, in the international and in the domestic market, largely becomes the extra undeserved income of the Japanese manufacturers, in the same markets. It is one thing to give BOJ one trillion dollars as a check, which is treason and illegal. It is another thing to give up the chance to earn one trillion dollars, and let Japan pick it up, which is legal. But over the course of the past two years, the net effects of both are EXACTLY THE SAME.
In finance, when two transactions result in the same exact outcome, they are considered "arbitrage-free", and by this principle it can be demonstrated beyond the shadow of a doubt that the PBOC has transferred probably hundreds of billions of dollar of lost income to Japan, and by the principle of logic, that if two events are identical, if one is illegal, then both are equally illegal.
This is why the PBOC must be banned from buying Yuans with China's hard earned dollar reserves, immediately. And, all foreign-currency-denominated loans to Chinese banks, businesses, and individuals, as well as government agencies, must also be banned, because by deferring loan repayment into the future, these are all equivalent to buying Yuans with China's hard earned dollar reserves, and have the same net effect, and thus, by "arbitrage-free" criteria, borrowing loans denominated in dollars that have to be paid back in dollars ultimately, is the equivalent of buying Yuans with Dollars on an installment basis.