Testimony of a Mongolian Singer (2015)
The Depreciation of the Chinese Yuan - 2014
Dawn of Asia Magazine
The Internatinalization of the Chinese Yuan (2012)
The Fallacy of the US Dollar (2011)
Faces Behind the Label (2010)
Stop The Buck - The RMB Should not Rise (2010)
The Speed Of Money (2009)
Marginalized Migrants in China (2008)
Minority Peoples Groups (2004)

 

Stop the Buck – The Chinese RMB Should not Rise!

By Chuck Chan, Management Consultant      July 1, 2010

As the US Dollar continues to depreciate against all major world currencies, the pressure for the yuan (or the renminbi) to rise has increased.  But the question is whether the further appreciation movement of the Chinese yuan will have a positive or negative impact in the world economy.  A further, sudden increase in the Chinese yuan will cause more hot money to pour into China for speculative investment and therefore create an inflation pressure that could not be controlled.  This inflation pressure will swap like a tidal wave across the globe and cause another wave of global economic crisis.  

China realizes that it cannot follow the footsteps of Japan in the 90’s by allowing its currency to continue to rise against the Dollar with no end.  The central bank pledged to keep the yuan’s exchange rate basically stable early in March of 2010.  The Peoples’ Bank of China says it will continue to push forward multi-polarization of the international money system. 1

Chinese yuan is "not undervalued", Premier Wen Jiabao told a press conference on March 14, 2010 at the Great Hall of the People.

 

“Wen said China's real effective exchange rate appreciated 14.5 percent between July 2008 and February 2009, the worst time of the world economy.  During this period, China's exports fell by 16 percent but imports only dropped 11 percent and its trade surplus decreased $102 billion.

He said keeping the yuan exchange rate basically stable had played an important role in facilitating the recovery of the global economy from the worst financial crisis in decades.

Wen said since China began its currency reform to unpeg the yuan against the US dollar in July 2005, the yuan has appreciated 21 percent against the US dollar, or 16 percent in real terms. “ 2


As one of the world's largest holders of US Treasury bills, China owns close to $1 trillion of US Treasury securities. Chinese leaders have now become more vocal in expressing their concerns over the United States' fiscal discipline and in calling for an alternative international reserve currency.

“Since the outset of 2009, Beijing has taken pains to diversify its monetary risks, which include signing multiple bilateral currency swaps, and pushing for the restructuring of international financial institutions.  An instrument less discussed in mainstream analysis but with long-term implications for the viability of the US dollar as the universal reserve currency, can be gleaned from the fact that in 2009 China reportedly bought 454.1 tons of gold from its domestic market, which is equivalent to nearly 50% of the total purchases of 890 tons of gold made by the world's central banks last year.”
3

China has been purchasing gold from the world market since the outset of 2009.  But the dilemma is - the increase in gold reserve will also weaken the dollars as gold price rises in the world market.

Will the gold standard be a stabilization force for the future of this global economy?  Whether we would return to the gold standard or not, at the brink of bankruptcy of the US Dollar, the major developed countries of the world are still holding onto a viable amount of gold reserve.  How much gold will the world market produce is not a simple supply and demand question.

BRIC countries - Brazil, Russia, India and China – the world’s largest developing nations have come together to form a coalition to called for financial reform of the international financial system where has been mostly dominated by developed nations. They are calling for a substantial shift in voting power in the IMF and the World Bank.  Would these nations become a basket of currency standard for the global economy is still too early to say.  Their voting power and their influence have already become substantial in the international financial system.4

The core of the matter is whether the world would continue to finance the falling US economy.  Some of them have no choice because the major nations of the world are holding onto trillions of US Treasury bills and currency.  If they are holding another currency or another standard with more solid financial backing, would they be able to get out of this “gambling casino”?  Is it about time to change the dealer of the game?

However, the real danger is, on June 19, China scrapped the yuan's 23-month-old peg to the US dollar and pledged to seek greater flexibility in the value of its currency.  The yuan has edged up about 0.7 percent since.  The author hopes that, instead of one side movement of the appreciation of the yuan, the flexibility in the value of its currency will swing back and forth like a small pendulum in the months ahead.


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Notes:

1.      China Daily 2010-3-6

2.      China Daily 2010-4-14

3.     Russell Hsiao, “ China Brief”, Copyright 2010 The Jamestown Foundation

4.      China Daily 2010-4-17