What's Up with China's Yuan?

They are undervalued by most measures. But will US benefit if Yuan appreciated? Will we buy less from China? Or our low income consumers will just have to pay a higher price?

this is a funny topic, not ‘ha ha’ funny, but ‘funny’ because you can make arguments in a lot of different directions. the US complains that the yuan is undervalued and, therefore, makes people buy Chinese products/goods instead of theirs. at the same time, US labor has become the most expensive in the world, making US manufactured goods more expensive comparatively. the cheaper yuan has definitely helped china build infrastructure and industry, attrubuting to its massive growth over the last decades. if the yuan were to increase in value, this infrastructure and industry growth might flow to other ‘low-cost’ producers (ie. India/Brasil). in my opinion, a more expensive yuan would just shift China’s economy from that as a comparative ‘producer’ to a ‘buyer/servicer’ and transition other low-cost emerging markets to be the new ‘producer.’ I don’t think it would give the US that much of a boost as we are a developed ‘buyer/servicer.’

I think dollar depreciation is very much necessary to create some inflation. Right now US is looking like an economic scapegoat, no one in emerging markets is letting dollar to depreciate against their currency, everyone is interested in selling cheap stuff to US to stimulate their economic growth, which is more like a poison pill to US where FED is in desperate need to avoid deflation. I am also thinking about this for few days now, can US artificially depreciate it’s currency against China just like China does with it’s currency, If a currency war is possible? If possible, who will win it, China or US?

All these Yuan debates seem like political hot air prior to an election season… Politically, it makes voters feel good to see their lawmakers bashing China. Economically, it’s complicated as mar350 pointed out… Yuan appreciated 20% since 2005, yet trade deficit with China almost doubled since then.

^ I don’t the whole agenda of Obama team is China bashing while it’s pushing for Renminbi appreciation, it’s quite economic, it could provide much needed inflation otherwise people will keep on borrowing from here and investing there, looks like Obama team is trying to avoid Japan like liquidity trap, along with China bashing of course.

why don’t you depreciate dollars yourself instead begging China to appreciate yuan. Don’t they learn that trade war = self destruction in econ 101? I’m so sick of these politicians…

Yeah. It’s certainly in China’s best interest to let the Yuan to appreciate so that it serves as one of the key measures to spur domestic consumptions and better tune its economic sturcture. B.O. and the lawmakers are using this chance to woo voters by picking an easy agenda item that most Americans agree on. Let’s Yuan appreciate --> drives up the price for essential items low income Americans buy from Walmart–> they get mad due to their economic hardship–> they blame it on B.O.–> they vote B.O. out of the office…

WTF Wrote: ------------------------------------------------------- > why don’t you depreciate dollars yourself instead > begging China to appreciate yuan. because the US can’t depreciate the dollar - its a global benchmark.

mar350 Wrote: ------------------------------------------------------- > WTF Wrote: > -------------------------------------------------- > ----- > > why don’t you depreciate dollars yourself > instead > > begging China to appreciate yuan. > > because the US can’t depreciate the dollar - its a > global benchmark. Exactly, that’s the problem. The thing that worked for US for so many years, is turning against US when countries are following exchange-rate-manipulation economics. Is it possible that current system of freely floating exchange rates might collapse because of some political incoherence and stupidity?

This is what my uncle wrote me (the guy who ran Lehman’s Asia FX desk for 10 years): “Competitive devaluations and the race to the currency bottom has gotten a lot of popular press recently. Historically, the cheap currency was used by export driven emerging economies as a way to stay competitive. Of course the US also followed the same policy as an explicit goal (Plaza accord) or through benign neglect (“markets determine currency values”). What has changed now is that the stalwarts of a strong currency policy, the Bundesbank (through the DM) and now the ECB (through the EUR) are quietly reconsidering the need for that policy. With no inflation in sight and growth rates just barely above zero, the Europeans and the alternative reserve currency may be joining the race to the currency bottom as the only policy tool left to encourage growth. Every country wants to grow by selling to someone else!!!”

this is a political problem to Beijing. not just thing about economics any more. Yuan appreciate -> all exports die -> China dies You see the impact of recent crisis on south China? Thousands of small business died. It reflected how important US demand is to China’s eco figures.