hi all. i was just thinking about if the chinese float the yuan,what would the effects be on the USD and US treasury markets? since china holds the massive USD reserves,would they start to unload them or keep them as a hedge. how about US bonds? would they sell them off also? or would they add to their reserves? any comments or story links would be appreciated.
I don't know if the Chinese would keep the US bonds or sell them. If the Chinese float the Yuan I expect the Yuan to rally relative to the US Dollar. Chinese goods become more expensive in the USA. The USA experiences higher inflation and China experiences a recession. The US Government raises interest rates to reduce inflation and the USA recession gets worse. The reduced US consumption of Chinese products causes a deeper recession in China as well. Higher interest rates cause US bonds to enter a bear market. Sheesh I'm just full of pessimism today. Well maybe it won't happen. It's all just a guess.
two catalysts of the burst of the housing bubble: raising cost of energy trading of yuan hook's arguments is sound. US has a large trade deficit with china, therefore, it will depress the dollar against yuan if it is traded on the open market. i cant speculate wether or not the chinese government would dump us treasury bonds on the openmarket. this wouldn't be good for the US economy(biggest consumer of chinese goods), and will adversely effect the chinese economy as well. it wouldn't be a wise move. the retail sales numbers confirms the burden of cost of energy on consumers in general. trading of yuan will be the last nail on this coffin. increase of cost in yuan will bump up the prices across the board. it wouldn't be very pretty. you can speculate on the rest... china had picked market makers for their currency. it is coming. http://uk.biz.yahoo.com/050328/323/ff4nb.html
It will not happen in the near future... they may change the pegging rate or include the tolerable limit instead. China government's top priority is stability. They are willing to sacrifice anything in exchange of this. They could see what happened to Korea, Thailand and Malaysia a few years ago during the Asia Economic Crisis. They are not going to take the risk of loosing control of the currency rate. And if the yen only appreciate by 10-20%, it is not going to hurt their export since you the Americans will be buying anyway. Actually this will only help us (I am a Chinese) since the major problem we are facing is that the raw material price has increased a lot but we can't raise our product's selling price....
Nothing will happen. China will eventually float the yuan but it will be gradual and take years. There will be a global redistribution of capital, but this will be slow. Part of the reason a lot of foreign cash is inflowing into China is to buy yuan. The speculators are already there. As for today, China won't do anything rash to the US economy because it needs our consumer class, our investors, and our technology, not to mention they still own a lot of $$$ and the selling of it must be gradual as well. The big edge China has over the world is their massive blue and white-collar work force eager to work for nothing. By the time China no longer needs the U.S., China's work force will be demanding U.S. wages, as their cost of living catches up with that of the U.S. By that time, China will still own a lot of dollars because the new "reserve currency" is really a portfolio of currencies of developed 1st world nations.
I agree with you and I am not Chinese. They will adjust the peg and get things ready. They do everything on a longterm plan. The Chinese Govt is scared to death of a NON-Control situation like letting currencies float. Especially, with the US as reserve status and with what happened in Russia. They are not ready to float. They do not have a developed Govt debt market ---and they would be preyed on. IMO the Chinese Currency will not float---it will fly ---and that will be the challenge. I believe Chinese will float the thing ---the next time the US is in a DEEP recession. Of course what is my opinion worth---I just plan on speculating there!
I question if the Yuan will rally against the US Dollar if the Yuan is allowed to float. Since the exchange rate is pegged and Chinese factory production is (or was recently) at maximum levels there is a high inflation rate in China. Raw materials in China sell for high prices or, if the Chinese Government does not allow prices to rise then there are shortages of raw materials with China. The shortage or raw materials may be causing the yearlong bear market in the Chinese stock market and probably a recession in China. Either the Yuan rallys relative to the US Dollar or the price of goods rises. That is the consequence of a free market. Either way the USA experiences higher prices for Chinese products.
Just to put things in context, there is a G7 meeting this weekend and making nice before the meeting is good policy for China... It also provides speculators a chance to whip up a little fear and greed by promoting one side or the other prior to.