31-10-2003 17:47									#1
	The undervaluation of the renminbi : EU point of view Support Apolyton

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The undervaluation of the Chinese currency is not the only cause of the China competitiveness.

Seems reasonnable.





Edit: link fixed

Last edited by Urban Ranger on 19-11-2003 at 20:48

	31-10-2003 18:27									#2
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This Link does not work.
Not even with pasting it together

	31-10-2003 18:43									#3
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I have edited the link; it works now but leads to the first page. The article is under the REUTER EDGE.

	31-10-2003 21:43									#4
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I don't understand these negociations. Of course, the US and the EU want China to reevaluate its currency. It is especially important for the EU which suffers from a too strong €. But there is something I don't get: why would the Chinese accept to reevaluate their currency? I see no reason for them to accept the USEU demands...

	31-10-2003 21:45									#5
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Because if they don't they'll be hauled before the WTO and slapped with tariffs.

	31-10-2003 21:48									#6
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quote: Originally posted by chegitz guevara Because if they don't they'll be hauled before the WTO and slapped with tariffs.

Does the WTO have any authority when it comes to change rates?

	31-10-2003 21:49									#7
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quote: Originally posted by Spiffor Does the WTO have any authority when it comes to change rates?

IIRC, they have authority over anything which is an impediment to fair trade.

	31-10-2003 22:53									#8
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quote: Originally posted by Spiffor I don't understand these negociations. Of course, the US and the EU want China to reevaluate its currency. It is especially important for the EU which suffers from a too strong €. But there is something I don't get: why would the Chinese accept to reevaluate their currency? I see no reason for them to accept the USEU demands...

There are not negociations, only claims (from the US) and recommendation (from the EU).

You are absolutely right, the Chinese will only move when it will not hurt them, and this is implicitely recognized and accepted by Lamy. On the contrary, the US demand a reevaluation, as if it would solve their deficit problem, which is clearly not the case. As 50% of their import from China are driven by US firms, the end result would only be a wider deficit.

The WTO has no mean to act on the value of the yuan compared to the dollar until it could oblige a sovereign country to make its currency convertible, which is not the case, and will probably never be. And this is because the currency status has considerable effects on economic matters not directly linked to the international trade. For instance, you cannot oblige a developping country such as China, to allow the free circulation of money, because it would open the door to international speculation which is dramatically disruptive for a developping country.

	19-11-2003 19:53									#9
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BBC today :

quote: The news came as the International Monetary Fund said China's currency was not undervalued, countering US claims. There was "no clear evidence" of substantial undervaluation - and in any case loosening the currency peg would make little difference to trade imbalances, the IMF said in its annual review of China's economy.

The IFM statement should help the US to correctly analyse the problem of the trade deficit.

	19-11-2003 20:42									#10
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Would a revaluation of the chinese currency not mean that in order to do so they would have to sell a massive amount of dollars? How would that help the Euro. It would only further the weakening of the Dollar and as such strengten the Euro even more. Also since the price of oil is tied to the Dollar a falling Dollar would mean that OPEC would raise their oil prices. Where would the idea be in that?

	19-11-2003 21:04									#11
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quote: Originally posted by DAVOUT BBC today : The IFM statement should help the US to correctly analyse the problem of the trade deficit.

If changing the currency peg wouldn't change the trade balance ... wait what I'm I saying? This is just ridiculous. Exchange rates affect trade balances. It's elementary.

	19-11-2003 21:07									#12
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quote: Originally posted by Tripledoc Would a revaluation of the chinese currency not mean that in order to do so they would have to sell a massive amount of dollars? How would that help the Euro. It would only further the weakening of the Dollar and as such strengten the Euro even more. Also since the price of oil is tied to the Dollar a falling Dollar would mean that OPEC would raise their oil prices. Where would the idea be in that?

A smaller trade deficit with China would strengthen the dollar. Trade deficits increase the flow of currency out of the country.

	19-11-2003 21:17									#13
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The yuan is not convertible, consequently it can be reevaluated (or devaluated) by a decision of the Central Bank of China. There would be no direct mechanical effect on the US $, and little difference on the trade imbalance (as worded by the IMF) of the US; and still less on the EU.

The Euro is not strong currently, it just reflects the weakness of the dollar, in the same manner as gold does.

If the price of oil is raised in due proportion of the fall of the $, it would not change the fate of the world except for the US (and China). Precisely, it would widen the US trade deficit.

All that makes the reevaluation of the yuan hardly a solution to the trade deficit problem.

	19-11-2003 21:23									#14
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quote: Originally posted by Kidicious If changing the currency peg wouldn't change the trade balance ... wait what I'm I saying? This is just ridiculous. Exchange rates affect trade balances. It's elementary.

That makes at least one point where you are in strong agreement with President Bush.

	19-11-2003 21:24									#15
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But the artificially low Chinese currency forces the Japanese to secretly buy vast amounts of dollars to keep their Yen low and competitive. Hence if the Chinese strengthens the Dollar, the Japanese would then have to buy even more Dollars in order to stay competitive.

	19-11-2003 21:26									#16
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quote: Originally posted by DAVOUT That makes at least one point where you are in strong agreement with President Bush.

That make only one point.

	19-11-2003 21:28									#17
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quote: Originally posted by DAVOUT The yuan is not convertible, consequently it can be reevaluated (or devaluated) by a decision of the Central Bank of China. There would be no direct mechanical effect on the US $, and little difference on the trade imbalance (as worded by the IMF) of the US; and still less on the EU. The Euro is not strong currently, it just reflects the weakness of the dollar, in the same manner as gold does. If the price of oil is raised in due proportion of the fall of the $, it would not change the fate of the world except for the US (and China). Precisely, it would widen the US trade deficit. All that makes the reevaluation of the yuan hardly a solution to the trade deficit problem.

A reevalution would not balance trade between the two countries but it would slow the growth of the deficit. It would also make the dollar even weaker and the Yuan stronger. That would affect the Euro. It would become stronger to the dollar and weaker to the Yuan.

	19-11-2003 21:29									#18
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Davout.

What would happen if the European Central Bank decided to let go and start a massive devaluation of the Euro? Would that not solve a lot of problems.

	19-11-2003 21:31									#19
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quote: Originally posted by Kidicious A smaller trade deficit with China would strengthen the dollar.

Of course.

The point is, in this case, that the trade deficit would not be significantly affected : the jobs will not come back in the States, and if the sources are changed (other asian or south american countries), the prices will be higher, and if they are not changed, the prices will be higher as well.

The only possibility granting a reduction of the deficit would be a reduction of the volumes imported, but this would cause a reduction of the consumption and of the employment.

	19-11-2003 21:31									#20
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quote: Originally posted by Tripledoc But the artificially low Chinese currency forces the Japanese to secretly buy vast amounts of dollars to keep their Yen low and competitive. Hence if the Chinese strengthens the Dollar, the Japanese would then have to buy even more Dollars in order to stay competitive.

Ok, sorry my last reply to you was not correct. The Chinese central bank buys dollars to make their currency weaker. If they revalue then they will buy less dollars. That would weaken the dollar. And yes the Japanese may choose to buy more dollars to maintain a consistant exchange rate with the dollar.

	19-11-2003 21:34									#21
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quote: Originally posted by DAVOUT Of course. The point is, in this case, that the trade deficit would not be significantly affected : the jobs will not come back in the States, and if the sources are changed (other asian or south american countries), the prices will be higher, and if they are not changed, the prices will be higher as well.

True

quote: Originally posted by DAVOUT The only possibility granting a reduction of the deficit would be a reduction of the volumes imported, but this would cause a reduction of the consumption and of the employment.

Consumption maybe. Employment no, the reverse probably would be true.

	19-11-2003 21:54									#22
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quote: Originally posted by Tripledoc But the artificially low Chinese currency forces the Japanese to secretly buy vast amounts of dollars to keep their Yen low and competitive. Hence if the Chinese strengthens the Dollar, the Japanese would then have to buy even more Dollars in order to stay competitive.

I have not yet seen a clear demonstration that the yuan was undervalued; and the IMF, after the EU, has just said that the yuan is NOT undervalued. Therefore I would refrain from qualifying the yuan of beeing artificially low.

The Japanese receive every year a large amount of $ from their positive trade balance with the US (smaller than China); this is mainly converted in Treasury bonds, instead of being sold on the market, which would strenthen the yen and weaken the $. In addition, when the dollar is weakening sharply, they can buy, from time to time a few billions on the market, but they are unable to buy the quantities that would have prevented the $ to fall below 110 (which was their target).

	19-11-2003 22:04									#23
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quote: Originally posted by Tripledoc Davout. What would happen if the European Central Bank decided to let go and start a massive devaluation of the Euro? Would that not solve a lot of problems.

As you know, the Euro is fully convertible; its value depends on the market which establishes its value after consideration given to interests rates, growth, inflation, political circumstances, general mood, ... The Central Bank controls only one parameter : the interest rate. So, the answer to your question is : No, the Central Bank cannot decide a massive devaluation. But it could decide to take advantage of a weakening dollar to decrease the interest rate which is still higher in Europe than in the US.

Anyway, there is no guarantee that the market will find it enough for changing its mind, but it could help.

	19-11-2003 22:08									#24
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quote: Originally posted by Kidicious Ok, sorry my last reply to you was not correct. The Chinese central bank buys dollars to make their currency weaker. If they revalue then they will buy less dollars. That would weaken the dollar. And yes the Japanese may choose to buy more dollars to maintain a consistant exchange rate with the dollar.

Once again, the Chinese Central Bank doe NOT buy dollars but Treasury bonds with the dollars gained through their positive trade balance.

	19-11-2003 23:28									#25
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quote: Originally posted by DAVOUT Once again, the Chinese Central Bank doe NOT buy dollars but Treasury bonds with the dollars gained through their positive trade balance.

And once again you are wrong, but I don't have anymore time to school you.

	19-11-2003 23:41									#26
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quote: Originally posted by Kidicious And once again you are wrong, but I don't have anymore time to school you.

I can tell with what the Treasury bonds are paid, but you cannot explain how and with what the dollars would be paid.

	20-11-2003 00:19									#27
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For the life of me, I cannot find that article. Can you cut and paste?

I'm interested.

	20-11-2003 01:19									#28
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quote: Originally posted by DAVOUT I can tell with what the Treasury bonds are paid, but you cannot explain how and with what the dollars would be paid.

First of all the Chinese Central Bank does not have the power to maintain a peg without buying dollars. That fact stands alone by the fact that Chinese currency exists outside of China.

Second, even if they did have the power to peg a currency to another without buying that currency it would have a negative effect on their trade.

Let's say that the US govt wants to fix the price of widgets at some price that is higher than the market price. It can either buy widgets until the market price increases to the desired price, or it can rule by decree that widgets can only be traded at the desired price. If they rule by decree they will significantly effect the amount of widgets sold, because many buyers will not buy at the new price. Sellers want to sell, and they can make more profit at the market price, but they can't.

Now you insist on believing that 1) China has the power to maintain the peg without buying dollars, and 2) that China can benefit by ruling by decree what the price of their currency will be. Even if they could rule by decree both nations would lose out on trade. Buyers in the US would buy less and sellers in China would want to sell more at a lower price but wouldn't be able to.

edit: The last sentence is wrong. Buyers in the US would be more than willing to buy more. The problem would be getting the producers in China to export more. Not a very good example then I guess. Change my example to the US govt setting a price ceilling for widgets instead and it works. Sorry.

	20-11-2003 04:03									#29
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When you set the price below market price you create a shortage, because the sellers will only be willing to sell less at that price. That's what the CCB would be doing if they pegged their currency to the dollar without buying dollars. Remember, when there is a shortage the quantity sold is what the sellers are willing to sell at that price, not what the buyers are willing to buy at that price. So with a fixed exchange rate below the market exchange rate a smaller quantity is exported and of course the price of the goods exported is less. That's why the CCB wouldn't do that.

	20-11-2003 05:29									#30
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The US and EU should be careful for what they asked for. When they got the Japanese Yen to increase in value in hopes to stop the flood of Japanese products, the Japanese started buying up US corporations and real estate.