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Originally posted by fatdragon at 2008-5-25 12:30
Hmm. My understanding of a currency exchange rate is that it bears little or no relation to any real asset worth and is pushed up and down as the result of speculative trading aided and abetted at a government level when it doesn't go in a desirable direction.
I don't think you're wrong there.
Most developed western countries have a freely floating exchange rate. What the market will pay.
Of course this has been used by unscrupulous crooks, like Soros, to make billions by unproductive speculation on currency movements, at the expense of citizens of the country on whose currency he speculates.
An argument of our former glorious Australian treasurer and later Prime Minister, the reptilian Paul Keating, was that Australia's dollar had to be "floated" in the early 1980s, to stop speculators enriching themselves.
It had been subject to a managed exchange rate up until then, and when it was floated, um, well it promptly sank.
No matter whether the currency is "fixed" (as with China's) or floated (like the OECD countries), the speculators will have a way of getting their dirty little claws onto someone else's hard-earned money.
In the case of China, it is well known that most economic commentators say that the currency is undervalued. This gives China's exports an artificial subsidy (at the expense of the international buying power of Chinese consumers & non-Chinese manufacturers).
China, naturally, wants money to flow in to the country, from overseas, just like they did 200 or so years ago. If the Yuan was allowed to float freely, Chinese exports would be more expensive to the rest of us, and the amount of cash inflow (for Chinese exports) could be expected to drop a little, and Chinese consumers may also be more likely to spend more on imported goods, as they would have greater buying power.
China's stance on its currency value is understandable, justifiable (from a purely internal viewpoint) and is acting in China's current interests.
Let's just not pretend it is a "level playing field", or "free trade".
[ Last edited by emucentral at 2008-5-25 01:59 PM ]