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This post was edited by abramicus at 2013-5-13 14:40|
Devaluation of the Yuan Must Go Hand in Hand with Disallowing Dollar-Yuan Direct Convertibility
When China devalues the Yuan, but does not allow free trading of dollars for yuans, it makes it easier for foreigners to buy Chinese products with less dollars. But it does allow foreigners to buy more Chinese Yuans with less dollars, unless they first buy Chinese goods. In this manner, China earns dollars, but does not suffer a net loss of Yuans, which can theoretically be used like Petro Dollars, i.e. as Petro Yuans which can be exported back to China to cause inflation, like a weapon, as the OPEC did to the Carter administration.
China does not allow interconvertibility of dollars into Yuans unless for the purpose of buying Chinese products.
This simple rule prevents foreign capital from FORCING the devaluation of the Yuan at any time in the future, if Heavens forbid, China should end up borrowing a lot from abroad in bonds denominated in dollars, like the Southeast Asian countries did, in the 1990's, when the British-led speculators attacked their currencies by flooding the market with the local currencies of each of these countries. They used a prominent Hongkong bank to lend them HK dollars, paying this bank high overnight interest rates, and then sell these HK dollars in the currency market, causing the HK dollar to drop in exchange value. After the HK dollar has reached rock bottom, then these British-led speculators bought back the HK dollars they sold at a previously higher price, and repay the HK bank with these HK dollars, and the excess is converted back to dollars and pounds as pure profit.