If China unpegs

Discussion in 'Forex' started by sKaLpZ, May 17, 2005.

  1. US 'anxious' to see China currency shift [source]


    WASHINGTON (AFP) - US Treasury Secretary John Snow said there is no reason for China to delay a relaxation of its currency peg for the yuan.

    "I'm convinced they will move," Snow told CNBC television on Monday."

    If China unpegs, the USD will go thru the roof!


  2. China won't revalue until it is patently clear to the whole world that China does not jump when Snow or US Senators say jump. The more they try the more they delay it.
  3. Yeah, that's what's normally gathered about the situation.

    What I'd like to focus on is the USD rate and which direction it's seen to be headed when/if the unpeg happens.

  4. Not gonna happen. I agree. The more these monkeys push, the more they will resist. All these typical US bully tactics (quotas on textile imports) will only piss them off and worsen the situation. The days of the US domination are over.
  5. But think about it, what if China figures out that revaluation is actually something good for their economy as a whole, and that the US is continually nagging them to do it because they know China won't be pressured into it? Fun stuff.
  6. At the risking of sounding ignorant, what exactly is pegging a currency?
  7. Economics. The vast bulk of China's economy are exports. What do you think would be the benefit to them if they allow the yuan to rise? It would severely hurt their economy. They have no reason to revaluate except to help the US. And they sure as hell aren't going to do that.
  8. The real key here is the inflation differential. If China inflates less than the US, the US can effectively "export" its inflation. If the US is the main trading partner, it's not too severe of a problem. However, if China's inflation is higher, their currency will become overvalued and they will be in a similar situation to Mexico in 1982.

    However, the second scenario is not the current one. They are undervalued as much as 40%. This is a good thing if their only partner is the US. But they also trade with the EU, and the falling dollar is hurting them in relative terms. This is likely why they are actively propping the dollar (in fact they are having trouble selling enough bonds with their fixed rate cap to buy US bonds). With the dollar strength of the last month or so, I don't see China getting too worried any time real soon.

    But, if they do revalue, all hell will break loose........
  9. They would survive a revaluation -- besides, where else is wal-mart going to get their merchandise? An equally mercantilist nation Japan prospered despite their yen going from 220 up to 100 to the dollar. It will be a one time shock, and who knows, all the pent up selling from foreign investors purely betting on reval might make things much less dramatic than expected.
  10. I thought Bill Gates was propping up China. :D

    Anyway, guys, this thread is getting off topic as it is not about whether China will unpeg or not, it is about where the USD will go IF they do...

    #10     May 17, 2005