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Europe ain’t crying about the Yuan

Euro-zone is not sniffling? What is the secret?

Euro-zone is not sniffling? What is the secret?

No-one shouts louder than American politicians over the value of China’s currency. But other countries may be ready to speak up too. Five G20 leaders this week called for a more “consistent” approach to exchange rates — with fingers implicitly pointing at China. The yuan is a matter of global concern. But widening the debate might not help the US cause.The euro zone is China’s largest trading partner and the yuan is pegged to the dollar, so euro companies should have more reasons to complain than their American competitors. One dollar, and thus one yuan, is worth quarter less in euros now than in November 2008. (via Group-think needed).

Europe ain’t complaining about the Yuan

Greece, Ireland, Italy, Portugal, Spain, are on the verge of a sovereign default. Eurozone is upto its gills in debt. The Euro is being called names. And they are not snivelling about the Yuan and China.

Very un-European!

  1. April 5, 2010 at 8:04 pm

    This is nonsensical. It is written to imply that the Euro is equally disadvantaged, relative to the Yuan & China, as is the dollar.

    Yet, the detailed information (such as it is)in the article says “One dollar, and thus one yuan, is worth quarter less in euros now than in November 2008. (via Group-think needed).”

    Of course this means that the Yuan has been revalued relative to the Euro; that the Euro has been devalued relative to the Yuan; that European exports have thus relatively advantaged relative to Chinese exports while imports from China have become more expensive, etc.

    The situation of the Euro and the $ relative to they Yuan, therefor are not at all comparable; the Euro has gained a 25% advantage over the dollar relative to the Yuan since 11/08.

  2. April 6, 2010 at 2:59 am

    Jim – There is more to this.

    Consider …

    1. Usually, Europe is at the forefront seeing dangers, damage, affronts, threats, effects, fall-outs et al. The whole she-bang!

    2. But in case of China and Yuan, Europe is not doing much of crying about the ‘undervalued’ Yuan. The Euro revaluation is a recent affair. So, not of much consequence.

    3. The Yuan undervaluation has been on the US agenda for a few years now – with varying intensities.

    4. Euro trade balance with China is slightly in China’s favour.

    5. All in all, good management by the Eurozone, it appears.

    Which in the current scenario is the one-bright-spot on the Euro horizon! Good for them.

    The question in my mind is – Is this European quiet related to

    1. Keeping China happy,
    2. Pushing the Euro proposition to the Chinese
    3. Increasing the share of Euro in China’s reserves basket.
    4. All at the dollar’s expense.
    5. After all, who would like to turn away a creditor who is happy with low-to-zero interest with an excess of US$2.5 trillion sloshing around.
    6. This US$2.5 trillion can turn Euro-fortunes!

  3. April 6, 2010 at 5:38 am

    The size of the US “twin deficits”, trade & payments, must surely force acknowledgement that the dollar is too high relative to currencies in addition to the Yuan. And that the real, long term solution to the problem of the US being able to buy imports too cheaply and having difficulty in export markets can only be a general devaluation of the $.

    That supports the implication that the Yuan is not the problem. It does not however provide a prima facie rationale for tying the Yuan to the dollar – quite the opposite. However, if China wished to make adjustments to the value of the Yuan relative to other currencies without disrupting $ trade then a temporary tie to the dollar may have made sense.

    The US needed to take fiscal and monetary actions superficially destructive of the value of the dollar. The Chinese, with this tie, could delay the impact of those actions on the value of the dollar, maintain its exports to the US, & assist in holding down prices in the US (where so much consumption is subsidized by the overvalued dollar’s subsidization of imports).

    The difficulty now, IMO, is to reduce the value of the dollar relative to the Yuan and other currencies without inducing serious labor & income problems in countries which depend significantly on exports to the US. Emphasis on increasing internal consumption & incomes in those countries can help, but how much of the $600 billion trade deficit can the exporting nations absorb before their own economies start having difficulties.

    In the US, while production for export and our employment, & wage picture would greatly benefit from correction of the current $ overvaluation, the increased costs of oil and other imports would increase nominal prices. Consumer reaction, and possibly voter reaction, could be very strong. For that reason, I suspect, a forthright policy of correction of $ over valuation will not be announced; instead the correction is apt to be through the more politically acceptable means of pushing the dollar adjustment onto the Yuan, and letting the Chinese handle the necessary international adjustments needed to smooth the necessary transition.

    This may include resetting the market mechanism for oil, so that major importers and exporters can agree on pricing and payments outside the strictures of the $ pricing and payments system and without being forced to convert national currency reserves to dollars to pay for oil.

    The time has come, IMO, for the US to recognize and correct the overvaluation of the US dollar. Since the early 1980’s dollar overvaluation has
    subsidized US imports of consumer goods,
    disguised the actual rate of inflation,
    artificially increased the nominal cost of US labor,
    resulted in the export (offshoring) of US jobs
    subsidized the export of US production capacity, plants, and technology to other countries, especially China, and
    distorted US monetary and fiscal policy.

    The time has come to dismount the tiger, accept the resulting nominal price increases (including especially oil), and begin rebuilding US domestic production capacity, labor demand, and wages & incomes.

    Other nations may have to, and in many cases are already facing the need to build their own domestic consumption & physical capital as a primary market for their output. The US can no longer bear that burden.

  4. April 6, 2010 at 2:00 pm

    Much of what you say is right … and spot on …

    But look at it differently … Will China go the Japan way …


  5. April 25, 2010 at 9:23 am

    I cannot sustain my self from commenting on this article: the Yuan is one of the problems facing industrial production other factors are the vastness of Chinese marketplace, the consistent economic policies by the Chinese government, and the relatively inexpensive Chinese Labor Market, which these and many other factors lead to exodus of industrial production, outsourcing of such, and lack of capital (out going to China) that faces US and in prospective EU too. To bang on the Yuan as a “magic stick” for solving the problems elsewhere is incomprehensible. The value of currencies reflect the demand-and-supply marketplace and obviously China manipulate markets for its own benefit, but there are other tools of economics such as tax breaks, subsidies to exporters, easy crediting and etc. which China would use if needed on the spot. This paranoia with the appreciation of the Yuan is more alike the currently established useless Global Financing System of WB, IMF and WTO which did not oversee neither prevent the last Great Recession of 2007-2009. The problem with playing with the economy by politicians has become a dangerous game that hits back with a vengeance.

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