Aside from making their exports more attractive, what does China have to gain by keeping their currency undervalued?
It seems as if this is hurting them more than it helps them.....so why would they do this?
You said it yourself....
limitgov:making their exports more attractive
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
is there any other reason?
If that really helped an economy out, lets go ahead and devalue are currency even more.....then we'll be in export heaven.....
How does devaluing currency help exports?If china dollars are worth less, wouldn't they just charge more for their products?Conversely, if they wanted to increase exports, couldn't they reduce the nominal price of their goods?
ok....well why does China keep their currency undervalued?
What do they have to gain?
Only because they have mercantilistic wetdreams...
Periodically the tree of liberty must be watered with the blood of tyrants and patriots.
Thomas Jefferson
I can't wait till china crashes and everyone shuts the f*ck up about how great government intervention is.
limitgov: is there any other reason? If that really helped an economy out, lets go ahead and devalue are currency even more.....then we'll be in export heaven.....
It doesn't really help them, in fact, it severely diminishes the purchasing power of their citizens keeping them trapped in poverty. But, it makes Chinese products cheaper on the international market, which makes the GDP number bigger (Look, Y=C+I+G+X), and Keynes said that GDP is very important. We devalue our currency in order to boost exports, as does almost every other nation. It's a key tenant of Keynesian 'progressive' and 'revolutionary' macroeconomics (Mercantilism). The purchasing power of the dollar entirely depends on the success of our stock market.
Yeah china had 10% inflation last year by their own count and only 6.5% GDP growth. You do the math.
The Chinese government are primarily concerned with domestic unrest. By keeping the currency devalued (although nowhere near 2004-2005 levels) they can keep exports up and people in work, busy and occupied.
As a result China is inflating a massive investment bubble. They will put up with a little US protectionism just to ensure they continue to have a market. And they will continue buying treasuries to prop up the US stimulus in turn.
From this, in the long term, nothing good will come. It would not suprise me that in 50 years time we are talking about China's Lost Century, the same way people talk of the Japanese Lost Decade.
But hopefully then all of the smug NYT op-eds praising the enormous Chinese stimulus again the weak US one will come back to bite.. although it would be a first
..and if the New York Times is still around, of course.
Snowflake:How does devaluing currency help exports?
I've wondered this myself. If you keep your currency weak, doesn't that mean your prices go up? I believe Bush wanted a weak dollar to encourage exports and our trade deficit exploded in the last decade.
The Chinese government are primarily concerned with domestic unrest.
This is how I also feel about the topic. It is not in the interests of most Chinese, but for the ones in power and currently living well, pegging to the dollar certainly seems to be in their interest. I think it's in the government's favor, but they are basically criminals that their society has been trained to tolerate.
I follow Peter Schiff's articles generally, but I've yet to hear him speak about this topic specifically. Yes, I think he's right when he says it's in China's best interests to stop pegging the renminbi to the dollar, BUT that's referring to the chinese people, not the government. Since the government thugs are currently the ones in control (with seemingly no end to that trend in sight due to their massive propaganda campaigns and military), this is the source of my personal skepticism that US consumerism is going to be replaced by chinese consumption (in the near future). Perhaps we should write to PS to see how much he has considered the political side of the equation in his predictions.
I don't think he's wrong, I do think the corrections will have to happen some day, but I'm not sure it's going to happen so soon. Perhaps if some major event setting off a chain reaction of some kind occurs it would be sped up...
David Sherin:I've wondered this myself. If you keep your currency weak, doesn't that mean your prices go up? I believe Bush wanted a weak dollar to encourage exports and our trade deficit exploded in the last decade.
If there is any truth to it, it has to be because of fiat banking. Markets would not operate like this.
Snowflake: David Sherin:I've wondered this myself. If you keep your currency weak, doesn't that mean your prices go up? I believe Bush wanted a weak dollar to encourage exports and our trade deficit exploded in the last decade.This logic is all messed up. Every time I hear it, my Austrian sense starts tingling. If there is any truth to it, it has to be because of fiat banking. Markets would not operate like this.
Yeah, people get confused because there are 3 types of international monetary systems, and all 3 operate differently. The system we're currently in is fiat monetary nationalism where local currencies never truly leave their respective nations, but rather, the exchange rates merely adjust. Devaluing your currency in this system makes your products more expensive at home, but cheaper on the international market. The problem is that every nation does this, so it's like a race, or a competition. Not to mention this reduces our interest rates leading to capital flight out of your nation towards nations with higher interest rates. There's a kicker though, the lower interest rates stimulate the equity markets, and if your market is seen as safe, capital will flow back. It's all very complicated. I would suggest Monetary Nationalism and International Stability by F.A Hayek.
Same here. I just read an article that said when a currency strengthens, prices in that country go up (???). I've never heard an explanation for this, but it makes no sense to me. Maybe there is a reason for it, something to do with fiat money or central banking (I don't know), but I agree that a free market would not operate like that.