Author: abramicus

CHINA'S BID TO BECOME AN IMF RESERVE CURRENCY IS A FALSE GOAL. [Copy link] 中文

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Post time 2015-5-5 14:59:25 |Display all floors
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.

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Post time 2015-5-19 16:26:00 |Display all floors
CHINA'S PRIDE IN CLINGING TO AN EXCHANGE RATE OF 6.20 WILL COST IT ITS ENTIRE FOREIGN CURRENCY RESERVE AND MORE . . .

If you read the commentaries of Chinese pundits, you would think that it is a disgrace and failure to let the Yuan exchange rate go down to 6.50 Yuan/Dollar, as if there is some intrinsic advantage of overvaluing the Yuan when the REALITY is that an overvalued Yuan is costing China hundreds of billions of dollars in lost export earnings each year, conveniently being picked up by Japan, which has been devaluing the Yen instead.

The argument that China needs to maintain a stable currency exchange rate is like the Manchu dynasty arguing it needs to maintain a balance of diplomatic relations with the Western world, even as its economy is being sucked dry by the Opium Trade.  In this case, the Overvalued Yuan is the Opiate of the Chinese Economy.  It drains away the income of the manufacturing sector, the wages of the workers, and the savings of the housewives, including that of the widows, orphans and older folks, all for the sake of a LIE that an overvalued Yuan means China is richer, when in fact, such overvaluation is paid for with the foreign currency reserve of the Chinese people itself.  You never get rich by paying yourself a hundred billion dollars a year - never. And if you begin to consume the one hundred billion dollars you pay yourself, instead of produce goods worth one hundred billion dollars that you can use or sell, your dollars are just going abroad, such that this so-called CONSUMER0-DRIVEN ECONOMY is nothing but a sham, because at the same time that China is moving toward consumerism, its manufacturing capabiity and output is DROPPING.  How can you consume what you did not produce, unless you are spending down your savings?

Nobody needs a doctorate emeritus from any Ivy League school to know this fact.  This is Economic Hit Men nonsense that must be stopped or China will end up like MH370 on course to a forced landing by remote control of foreign powers without any survivors.

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