Author: doberman

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

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Post time 2006-4-11 01:29:42 |Display all floors
doberman:

If you look at the GDP formula, exports and imports are small, relative to the total.  This currency relationship will not only affect exports and imports, but the financial markets in general.  Last July, when China un-pegged from the dollar, going to a basket of currencies, and revaluing just 2.1%, financial markets moved too, as other Central Bankers followed China’s lead.  Yes, the RMB is not an internationally traded currency, but because China controls the largest cash reserves and has so much liquidity, it has the ability to move markets and interest rates, as you saw last July, despite not being an internationally traded currency.  I think you are looking at this issue too narrowly.

From Export Import Perspective:

Strong Dollar relative to RMB: US imports rise, US exports fall.  US Importers are happy.  US Exporters are unhappy.   Attracts more financing for the US.  

Weak Dollar relative to RMB:  US imports fall, US exports rise.  US importers are unhappy.  US exporters are happy.   Attracts less financing for the US.  

Changing the RoE will help importers or exporters, but not both.  


From Interest Rate Perspective:

Since US has large deficits and debts to finance, it must maintain attractive interest rates to attract foreign financing.  Foreigners will stop or slow down new purchases of US debts if the dollar is weaken for a prolong period, since they don’t want their portfolio to lose money over time.  Therefore, USA maintains higher interest and strong dollar because it needs the financing.  

From Money Supply Perspective:

Since the RMB is not an internationally traded currency, we can only discuss the money supply perspective in theory.  In order to move the RoE to your example, 1-2.08, China would need to buy enough RMB, to decrease the RMB money supply, thereby increasing its value.  This would strengthen the RMB, and weaken the dollar, relatively speaking.  But if you are asking the Chinese Central Bankers to do that, it means they have less money to buy US debts, which means less foreign financing.

Either policy (strong or weak dollar relative to the RMB) has some happy and unhappy people in the US.  But clearly, the strong dollar has the additional advantage of attracting relatively lower interest foreign financing.  I don’t feel US has a choice to weaken the dollar, since it needs the financing.  US exporters and importers are in a zero sum relationship, as what benefits the importer, hurts the exporter, and vice versa.  Therefore, the practical decision is which decision will help more, or hurt less?  Review my 17 reasons not to weaken the dollar, and I think you will agree the negatives are more than the positives.  I choose to see the whole picture, instead of  be like our politicians, myopically see only what they think will help them get re-elected.

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Post time 2006-4-11 02:54:49 |Display all floors

I'm leaving Europe

..and I take the nearest flight to the USA, plainly cheat the warthdogs at the US border ...."m'Merican' and I slip in without visa. I then forget about all the rest of the world and I concentrate on the US business in relation to the RoE issue. Just to talk with you about the same thing, ray.

1. The nerve link between China Central bank and stocks in America.

My answer is ...YES , ray. If a sweeper employed in the Top Office of Bank of China, would sneeze remarkably in the bus, speculants in America begin nervous. If the medium rank official of the same bank tells two sentences across the table during lunch in Beijing, phone lines in NYSE get red hot and talkers beat next record of words_spoken_per_second.
True.
But this concerns movements of Chinese forex , which the biggest part is kept in DOLLARS, not RMB. So when China may move her DOLLARS, I repeat again, or just mention that next DOLLARS in the coming year will partly go to other places than the USA - this makes panic and nervous atmosphere, because of the thing you mentioned. The necessity to have constant flow of money in to keep the internal debt served. I would like you to notice we are talking aboyt Chinese Dollars not RMB. I say Chinese dollars as China is the owner of them.
Therefore when you said >>>..has the ability to move markets and interest rates, as you saw last July, despite not being an internationally traded currency.<<< true - but is has nothing to do with how much RMB China has , but has ALL to do with how much Dollars are in her possesion.

--
From Import perspective.

All here is what I also cuncur with. But the "Attracts more financing for the US. " is disputable. THat doesn't mean I say it is opposite, it only means Isay it is not so simople to state. In the short term - you are right. Less money is the hands of foreign exporters from countries , which have huge balance in plus = less money is being injected into US in the form of buying gvmnt obligations and real estates.
But please consider the effect on the stock toward investments in companies/exporters. If the gain capability to multiply their export to China, considering the capacity of Chinese market it would attract quite a money to invest in them. This would take time, surelly, but in longer perspective this might offset the negative impact from lesser stream of Chinese money.
Healthier and more competing American economy would rather give more faith in the worth of US dollar, thus giving its strength. It is not the RoE between dollar and any other currency which counts, but the foreseen changes.  Having economy based nearly entirely on the domestic consumption, real estate speculation, and bubbles , plus export of of raw food( this part is still healthy) makes the investors pray that the consumption will not crack. But with the level of debt , which concerns both the government and the average Joe, more and more people see the shape of the pyramid, something like what happened in Albania, only on uncomparable larger scale.
Albania's pyramid virus had short life - just a few years when all hell broke loose. Their Lek was not world money. US dollar is, so USA is anchored in multiple points to the world economy, with the strongest hook on petrodollars.

I agree that the interest rates are one of the strongest impulses making world money to wander across continents. But if we put aside hot money, which are pure short term speculations, the rest of the flow wil as much at least be based on the TRUST in dollar and confidence that it will not be devalued suddenly to other world currencies, or that in time the interest rates will not be forced to drop down significantly , or...that it will not just break with big BOOM.

I think above was also written from money supply perspective.

Now, whatyou wrote under the same term treats rather about Chinese Bank reactions on financial market , to get RMB at the desired level by using US dollar munition.

Ray, for pete;s sake..such market DOES NOT EXIST.

China would need to buy enough RMB, to decrease the RMB money supply, thereby increasing its value


RMB is not the world money ,ray. Where from would CVhina need to buy enough RMB? From Chinese bank of Agriculture? From Bank of China? From Chinese Industrial Bank? From which of CHINESE banks?

Because NOT from the world. There are no RMB in the world ( forget about these small pinnuts here and there) .
RMB is as strong internally as much it has coverage in internal production and services, i.e. as much as the internal market is strong and saturated with goods. Only , if suddenly , or not, the internal market would get emptied, like it was during the central planning, then yes, RMB would get inflated.

If China tomorro says "the RoE is now 1:2, or 1:15. or 1:8(as it is now) ,what has the USA in habds to financially change it? How much RMB lays in the hands of American banks that they can throw RMB to the market and drop it down? Even if they had ( and they don't) the RMB market is not any free market where you can swap money left and right. It is all controlled on big scale. Small amounts , fine, they can sneak through Chinese Wall, bit massive attacks to drop RMB? Fairy tales , ray. No can do.

Chine does not need to buy out any RMB to change the RoE, because there nothing to buy , what they already do not have.Generally, you can only pick up some very small and not worth mentioning sums, which have no any impact on the mass of Chinese economy.

What you are talking about, keeping the value of dollar, is talking about keeping its value to the world currencies, which are as easily transferable and exchangeable.I do not polemise with your 17 points. But you mix devaluation of dollar in relation to the money having purchasing power everywhere, with devaluation to the money , which has purchasing power only in China. May be not even this. I would need to know, whether a foreign company can buy a substantial (big,big) volume of goods in China against , say cash in RMB, officially.  Not just in barter as the result of agreement between China and some poorer countyry, but say, you, ray, come to China, go to a factory and buy their product for export using RMB cash. Factory would'nt mind may be, theu are good people, but the rules would quickly show you this is not possible.
Andy Dob

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Post time 2006-4-11 04:18:31 |Display all floors
doberman:  

Go back and reread my post to you, since I don't think you read it carefully.  


I wrote in the last post: "Since the RMB is not an internationally traded currency, we can only discuss the money supply perspective in theory."  Everything under the money supply perspective was theoretical, since there is no realistic mechanism to do it now.   In the future, if the RMB becomes an  internationally tradable currency, then we can talk practical ways to adjust money supply to move RoE.  Please read it carefully again, as I think you will find we mostly agree.   


Bottom line:  US needs financing, and needs to maintain a reasonably strong dollar.  If not, it will need to print money to fill the deficits, with ensuing inflation.  Strong dollar is what retains confidence for foreigners to continue buying US debt instruments.  The second confidence builder is the fundamental economy of  US itself.  But as I wrote before, the RoE cannot help both US exporters and importers simultaneously because the currency premium is a benefit to one, and the penalty to the other.   Therefore, select the currency policy that yields the greatest benefits, and the least pain.

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Post time 2006-4-11 05:18:52 |Display all floors

OK raymond

I did what you asked. I read your previous post again and again.
This "money supply perspetive in theory" did not clearly meant "the time when RMB is the world money". Perspectively could mean some time in the future , but conditions were not put forward.

Ok, so you were talking in your last part about RMB as a free traded and recognized currency in the world.

At the moment it begins, there are no RMB outside of China. Before RMB is bought out it has to be...bought. This means the other currency flow in , which would bring the value of RMB up. With prices in Chinese factories payed in RMB and 1:8 RoE ( if it be initialy kept as now)  world money would flow in , increasing the value of RMB. Speculators would come for this purpose surely. As the RMB is undervalued in relation to the strength of Chinese economy. I said that the proper would be 1:2.08. This is of course the Prima Aprilis joke, and I made it up on such "scientific" bases as claims of a few forumites here about PPP=4 and by simple reversion I landed at approx 1:2. I added 8 fen as this was the closest value with the lucky number 8. For the luck of this thread.

So when the foreign speculators would come to China to buy the RMB , being the free exchengeable currency , counting on bull, China would have to intervene downward(!), because her export would be in jeopardy once the prices of Chinese goods would go up and loose the competiveness (from the perspective of foreign buyers, not on local market).
Intervention by printing money, not buying it. THis , of course is safe only to such extent as how much is the need of the world to hold their forex in RMB. It also gives away in the future partly ,the absolute independence of China to set up the RoE between RMB and the rest of the basket.

It is so obvious that any maneouvre with RoE ALWAYS goes EITHER for/against import/export , that I did not even talked about it. This is trivial truth.

So I think that you agre , that at the moment the RoE RMB to other currencies is fully in the hands of China, can be changed by China without any consideration about the danger from the outside of run for -or-against RMB, and the only thing world can do about it are nice talking/negotiation with Chinese authorities and if such give positive result satisfying both sides - its all OK.
If not, then these countries, who feel that there is something wrong , have to undertake other ,internal and administrative measures, if they are sure it would bring better results in grand view.

However I think that concrete talks with China in the atmosphere of real understanding of concerns of all sides would bring the best results. It depends on the style and manner of talks and the proffessionalism of the participants of it.

[ Last edited by doberman at 2006-4-11 05:20 AM ]
Andy Dob

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Post time 2006-4-11 06:59:59 |Display all floors
doberman:

Yes, I understood why you used the 2.08.  You understand lucky 8.  

I didn’t feel I needed to be that specific, since I was only writing about money supply theoretically.  That’s why I gave you the money supply perspective IN THEORY ONLY.  Let’s forget money supply perspective, since I realize there is no current realistic mechanism to use it now.

If I were to predict the future, I would say China is on path to make its currency an international tradable currency.  But its financial institutions still need to mature, as financial controls and transparencies still need some work before China can make that move.  Secondly, since there is some talk right now with other Asian countries about a potential Asian Union (for lack of a better name) using various existing platforms like APEC and ASEAN, there is a possibility in the future there many be an Asian currency for AU just like the Euro for EU.  Therefore, we may not even be talking RMB.  An AU currency may standardize the Asian currencies and make it internationally tradable too.   This is just my prediction as I would not be surprised if it turns out this way.      

Let’s simplify your message.  You can move the RoE but there is no RoE that can simultaneously help both US importers and exporters (zero sum gain).  


Strong dollar:

1) Importers like Wal-Mart make money
2) Customers get lower prices for goods
3) Exporters like GM loses big time, with bad product, and RoE make it expensive too
4) Attract more foreign financing since investors care about whether their investment will retain its value
5) Inflation lower, since foreign financing means less need to expand money supply beyond demand for goods and services
6) Keeps interest rates relatively lowers

Weak dollar:

1) Importers like Wal-Mart make less money
2) Customers pay higher prices for goods
3) Exporters like GM products are more affordable, but do not necessarily mean automatic increases in sales, since not all car buyers are price sensitive.  Some do care about quality and reliability.  
4) Discourage foreign financing since investors do not like to invest in assets that don’t retain it value
5) Inflation higher, since less foreign financing means expanding money supply of dollars beyond demand for goods and services
6) Interest rates will need to be higher, to bring back the foreign investors

These two policies, strong or weak, are not theory.   We have seen these two policies at work in the USA in the last several years.  If US didn’t have huge debts, it could move the RoE to a midpoint where it helps and hurts both US exporters and importers equally as humanly possible.  But adopting a strong dollar policy is necessary to keep foreign financing here.  Either way, there are positives and negatives as no dollar policy can help all sectors of the US economy.  A strong dollar policy just helps to gain more benefits, than a weak dollar policy.

[ Last edited by raymondusa at 2006-4-11 10:15 AM ]

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Post time 2006-4-12 19:23:18 |Display all floors

BIG Mac worldwide

I found it, I found it! With the help of the man , who thinks wrong, but I need to thank him for this.

The Big Mac PPP.

In the web site of The Economist
http://www.economist.com/markets ... fm?story_id=5389856

EDITION.ADDITION

THe link to this secret MacQuack masonry has been discovered thanks to the to the unstoppable efforts by the famous Advocate, Mr CANCHIN.

Address: China Daily forum; Free talk district; street: United Tombs of Transylvania , room number...around 528 , but you may ask neighbours.


[ Last edited by doberman at 2006-4-13 01:51 AM ]
bigmac ppp for Jan 2006.gif
Andy Dob

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Post time 2006-4-13 16:28:09 |Display all floors

Americans Favor Patience With China on Trade Gap, Yuan Change

April 13 (Bloomberg) -- Americans want to maintain good economic relations with China and are less concerned about the near-record U.S. trade deficit, according to a Bloomberg/Los Angeles Times poll.

By a margin of 50 percent to 26 percent, Americans say China should be allowed to proceed at its own pace in making its currency more flexible rather than being forced to make changes to reduce its trade gap with the U.S.

That view contrasts with the atmosphere and rhetoric in the U.S. Congress, where at least 15 legislative measures have been introduced in the past year addressing trade and currency issues with China. Senators Charles Schumer and Lindsey Graham are among politicians who say China is keeping the yuan artificially weak to increase exports.

``China is on its way to being an economic giant,'' said Rick Haverman, a 46-year-old high school history teacher in Spokane, Washington, who participated in the poll. ``That trumps the trade deficit, which I see as more of a short-term problem.''

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