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Randy Zwitch // Apr 10, 2010 at 9:48 am
Interesting thought Syed. Certainly, the economics of changing valuation of currency is relatively well known, but what it would mean for the world for a country as large as China to do it has maybe not been seen.
I could see China nominally allowing the Yuan to appreciate, but I don’t see a full ‘float’ in their future. There’s just way too much money to be made on the export side to allow a truly floating Yuan.
Of course, if the U.S. stopped issuing so much debt, China wouldn’t be able to maintain their current strategy; as I understand it (or, think I remember it), China is able to revalue their currency by requiring Chinese exporters to convert their Dollars to Yuan. The Chinese government can then buy U.S. debt, rather than goods from the U.S., and thus doesn’t give any boost to the Net Export side of the GDP equation.
But the likelihood that the U.S. government will stop spending money we don’t have, is about as likely as the Chinese government deciding to revalue their currency to be less competitive. What a tangled web we weave!
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