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1 $ = 2.08 RMB -the newest Rate of Exchange [Copy link] 中文

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Post time 2006-4-1 21:42:39 |Display all floors
Being protected by the custom law of the International Prima Aprilis I have no fear to suck you in my thread today.

I have seen a few times in the forum, when people were talking about PPP factor needed to adjust the raw calculation between GDP in USD and RMB. This factor was usually 4 -4.5 .

Using this factor , the huge difference in comparisons of GDP per head (in usd) does not look that drastical anymore. I also agree , that Purchase Power Parity is a must be factor in any comparison between levels of living in different countries. Usually the comparisons between states of a similar pattern of consumption are done in the way to show an average time needed to buy a certain product.

For example: how many minutes are needed to buy an egg, a 1kg loaf of bread, a 1sq meter of a flat area, 1 bus ticket, a ticket to cinema...etc

We are aware , that one of the sources of incredible victory of China on international markets of house commodities is her cheap labour. Cheap is always a relative thing, because there are other countries with even cheaper labour, which cannot show anything comparable to China's success.

Anyway, an average salary of a worker in a Chinese coastal city ( I do not know how much it is now) ..lets presume 1600 RMB (disputable figure and please do not hold me on that) is not just mere 200 dollars as an American person can figure out by simple using the official RoE. It is 800 dollars of power purchase on an American market , if we consider PPP.

I am not an economist ,neither have I had any firm education in this matter, so I hereby would like to ask these , who know how it is with the RoE?

I see as if the value of RMB should be about 50 American cents to bring the factories in China and in the USA to a fair competition. This is not to say that I insist on Beijin to run "masan" and put pistol to the chief of the central bank. The RoE is an internal matter of China authorities and whatever they do ,they have right to do it and bear all consequences of it. That is natural.

So here we have - Doberman thinks that a fair competition between Chinese and American companies ( and European , and some others with "free" fluctuating RoE ) is at the present  level around 2:1 (RMB to USD) . ( THis is provided the PPP is calculated at the factor =4)

I can also be whole wrong on this , as I told you, I am not an economist.

Any comment?

[ Last edited by doberman at 2006-4-1 09:46 PM ]
Andy Dob

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Post time 2006-4-2 10:16:15 |Display all floors

Control at all costs...

...a rigid giant.

"free fluctuating RoE "??

Not to much is free in China... free speech that is for sure. Free-dom of religion. free-dom to The Vote. Free-dom in politics. why would the world think that the Chinese government would be fair to the world, and let
the Yuan float?

....they are takers.

...but what comes around goes around.

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Post time 2006-4-2 18:10:52 |Display all floors
maybe sometimes.

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Post time 2006-4-2 19:47:44 |Display all floors
Thanks you Fish for your thought, however I still can't find whether my picture of 2 RMB=1 USD is proper or false.

Unless I will read your post more carefylly and find the relation between free speech and Rate of Exchange. We have in Poland free speech on this subject and many articles concerning the RoE Polish zloty /US dollar have been written , both for and against strenghtening and weakening it. No peopl went to jails. What is in China, whether they can talk about economical stuff freely - I have no idea. I have not read Chinese newspapers in Chinese.

I am so weak in economics to the point , that I have no clue on what influence religion(s) has(ve) on exchange rate of local currency.

Voting. We are as tyrranical country as China in this respect. Or as Germany. No voting on Rate of Exchange is offered to our enslaved nation. OH shit. Fish - this is a great idea..someody should have picked it up earlier. I may set a new political party and my pre election slogan and promise to the Nation will be " When I become the president , you will be freely voting on Rate of Exchange".
Fish, how much chance do you give my party in next elections.:)

No freedom in politics. What you mean? I see that the USA and Europe are saying something just opposite ->"China has too much freedom in financial politics, particularly in setting internally the RoE". This shows rather that China is more free than for example Poland. Our central bank has a substantial sum of reservers to counteract attacks on zloty from abroad, as we have nearly free exchange. Not as free as in the USA (?) perhaps, but I can change zloty to dollar (and back)in kantours and banks. They compete on the market. In China it is free only one way: from the foreign currency to RMB. Here I see the limitation of freedom, but not in the China's freedom to set the RoE.

Why would we think Chinese gvmnt would be fair to the think that Chinese gvmnt are responsible for the good of Chine first..for the others later. Chinese gvmnt had a strategy to set RMB and conditions to stimulate rapid growth of production section of economy with strong incensitives for export. THis brought them after relativelly small number of years to the place NR1 of foreign reserves holders. I understand , that before releasing the RMB to the playground of foreign sharks they have to accumulate the financial weapon to play. You know , the counter-reaction means , when waves of speculative money would flow to and fro China once they make it one of world money.


I have just read that American economical magicians claim that RMB is undervalued by 40%.
Why 40%, when Doberman sees it as 300% (or75% from the other side) do they calculate this 40%. You know, we read these news about the import/export imbalance, about tarrifs to be imposed and we only are fed with figures like 40% and 20% and whatever percent. Have anyone seen how it is calculated , if not taken straight from the ceiling? Is this 40% a mere difference in retail price between similar products made in USA and made in China?-> this would not be only to the RoE, much more factors set the price.


Please, anybody , who can help me to understand , whether I am right or wrong ( AND WHY!!!), seing the PPP factor as a one good indication of how much a currency is overvalued. Not just RMB, it also refers to others.

[ Last edited by doberman at 2006-4-2 07:56 PM ]
Andy Dob

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Post time 2006-4-2 20:53:44 |Display all floors
Originally posted by doberman at 2006-4-2 21:47
Thanks you Fish for your thought, however I still can't find whether my picture of 2 RMB=1 USD is proper or false.


there is a not-so-serious method of calculating relative values of currencies/exchange rates.

Comparing the price of a Big Mac.

That's it. Work it out and see how it compares against your more scientific theory!


"他不是救星, 他是一个非常淘气男孩" - Monty Python

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Post time 2006-4-2 23:17:41 |Display all floors

McMack prices

I have no idea what are the prices in Mac Donalds around the world. I only know in CHina.
In Europe I ate it twice (hence I can remember) ; one in Berlin and another time when travelling in Poland. I do not even remember how much I paid.

This comparison , may be much influenced by the eagerness of people to buy fast food in different countires and provinces. It is too much narrow pipe to look at it, you much time people have to spend on eating, what are other options nearby, what is a custom of spending for food ( how big percentage do people give away to eat).

The first time they opened McDonald in Moscow, people were queuing whole night in the tail only bit shorter than Chinese Wall for a sandwitch costing then....WEEKLY SALARY!

As for the calculation of PPP - I rather trust a wide basket of commodities and services in comparison town-to-town, village-to-village etc. The twists here can be the quality of products/services and the depth of socialism subsidizing some of them.

Nevertheless PPP much different than 1 is one of the main factors of international job migrations. A man , who agrees to be mercilessly exploited in one country becomes Kresus back at home with the saved money, if the RoE generates high value of PPP.

[ Last edited by doberman at 2006-4-2 11:19 PM ]
Andy Dob

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Post time 2006-4-3 12:40:24 |Display all floors

Reply #5 doberman's post

Your picture is related to China...
However China economy has still to grow in DEPTH and  COMPLEXITY in its economy.
It urbanization is still should reached 70% to 75%..for it to be developed and play by the rules of developed nations...

Currency values are a measure of a nations RELATIVE level of development.
As a rule MAINLAND CHINA of the NEW MIDDLE KINGDOM still needs catching up.
before it reaches Rmb2 = US$1.....
like Malaya's RM1 = US$1.....that's the actual PPP for Malaya...

some measure of economic complexity, maturity and sophistication is needed.
this will be measured by the ability to attract people to our shores....
and ability to defend the value of the currency against capital flight......
while having the productive capacity to pay for the needed imported products or is a complex formula.......PPP and Actual real exchange rate are a good guide on the economic condition of each country...

ha ha (the thread on tax of dangerous because it is a trick to encourage capital flight...and prevent economic complexity from taking root in China.....a mistake that Malayan Riau government is adjusting now......)

Take care!


Green Dragon
Lord of the code (of life)
New Middle Kingdom

[ Last edited by greendragon at 2006-4-3 12:46 PM ]

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