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Revolutionar Post time: 2015-1-21 08:38
Who wants their currency devalued?
Certainly not the average salaried worker.
Nobody wants their currency devalued. It seems as if their purchasing power is reduced unfairly. But, if they understand that an overvalued currency reduces their earning power even more unfairly, in the form of fewer jobs, less well paying jobs, then they will understand that there is an optimal exchange rate, where their earning power is increased with only a little loss in their purchasing power for foreign products, while their purchasing power for domestic products in increased quantitatively, in that they can buy more at the same price.
Thus, we must distinguish between "devaluing the Yuan" which is good for the average wage earner, as the current exchange rate of 6.20 is preventing Chinese workers from increasing his earning power (reducing the GDP annual growth rate and pushing it back to 7.4%), and "undervaluing the Yuan" which makes imports of necessary raw materials and energy so expensive that factories have to shut down, that may occur if the exchange rate is devalued to 8.00 Yuan/Dollar. But, "devaluing the Yuan from 6.20 to 6.50" is not "undervaluing the Yuan" - rather, it is "correctly valuing the Yuan" which is necessary to keep China's workforce employed and to keep its earning and purchasing power working together to increase the standard of living of the average Chinese man and woman. The exchange rate of 6.20 Yuan/Dollar fails in this mission, while the exchange rate of 6.50 Yuan/Dollar will succeed in increasing both the earning and the purchasing power of the Chinese people.
It is time for the PBOC to admit its grave mistake and correct its exchange currency overvaluation disaster.