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This post was edited by abramicus at 2015-8-22 17:31|
WHAT WAS UNSAID BY CHINA HAS TO BE UNDONE BY CHINA.
The big "UNSAID" in the Yuan devaluation is that it was China's own initiative and plan to cause the Yuan to appreciate against the dollar, EVEN to the point of overvaluing the Yuan such that Chinese products are no longer competitive in the global market and also no longer competitive in the domestic market. This was done to impress upon its trading partners that the Yuan is a dependable store of value as compared to the US dollar, worthy of being an international reserve currency, but it came at an exorbitant cost of affecting the earnings of China's factories, transportation, and businesses, to the point that their share prices when divided by their dwindling earnings, resulted in some of the highest P/E ratios in the world, exposing the entire stock market to the risk of an interest rate hike that the Fed was planning to do, in order to prevent inflation of dollar-denominated assets.
Peter's Principle dominated the outcome. Anything that could go wrong, would go wrong, and they did.
First, the IMF staff proposed that the Yuan should not be included among the reserve currencies backing up the SDR, and this was approved by the board on August 11, 2015, postponing the vote to September 2016.
Second, the Fed planned on hiking interest rates by September 2015, making it harder for China to peg the Yuan to the Dollar, as any appreciation of the dollar would result in an appreciation of the Yuan, which in turns makes Chinese exports overpriced even more than ever before.
Third, the steady decline in export income of Chinese firms have made their share prices unstable, subject to sudden drops, which is likely to occur more frequently going forward.
CHINA SHOULD REVERSE ALL ITS BELLYFUL OF SETBACKS, AND SIMPLY LET THE YUAN FLOAT DOWN TO 6.50, UP TO 7.00, WHICH WILL MAKE CHINA AGAIN THE KING OF EXPORTS, AND ITS FOREIGN CURRENCY RESERVES THE HIGHEST IN THE WORLD AGAIN.