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GhostBuster Post time: 2015-5-4 17:58
For any currency to be a reserve, that currency must be able to command world status economic, banki ...
China's top banker liked to talk of the Triffin Dilemma that afflicts the country whose currency is also the international reserve currency, which occurs because the domestic needs of the country (i.e., to export more relying on a lower exchange rate) and the international needs of the country (i.e., to remain steady in value and higher in value than most other currencies) are often incompatible with each other.
China, in fact, is now in a Triffin Dilemma.
China's goal of becoming an international store of value demands that the exchange rate remains steady, and its goal of becoming the preferred international reserve currency demands that the Yuan constantly appreciate against the dollar and other international reserve currencies, which means, China cannot deviate from its current Yuan exchange rate by any significant factor, and China also cannot devalue the Yuan to where it would allow its manufacturing capacity to be fully productive, earning the maximal amount of exports, while satisfying the need of its trading partners to use the cheap Chinese goods to prevent inflation in their respective economies.
The answer to this dilemma is to NOT gear all of one's moves toward becoming an international reserve currency, but rather to gear everything toward maximizing the earnings of the country, and letting the volume of trade generated by its growing GDP to establish the Yuan as the preferred international currency of trade, as well as the preferred reserve currency for countries that import from China, since it serves as a perfect hedge against the fluctuations of the dollar, euro, yen and pound sterling.
In this light, the way out of the dilemma is to "revalue downwards" the exchange rate of the Yuan from its current 6.20 CNY/USD rate to 6.50 CNY/USD rate. This move not only saves the manufacturing sector of China, preventing its insolvency, avoiding bank runs, and eliminating the risk of social unrest, but also makes the Yuan even more valuable as a de facto reserve currency for trading purposes between other countries that import from China, and China herself. Killing two birds with one stone could not be cleaner and swifter.