China's call for a new reserve currency

news.bbc.co.uk/2/hi/business/7964037.stm

some of you folks care to weigh in on this?

is this merely positioning to warn the Ob administration not to devalue the dollar too much during its “bail out” ?

is this another warning not to destroy the PRCs dollar investments?

It’s the Chinese showing that they are well and truly in the game now. They have 30% of the world’s currency reserves, so they have every right to speak up, even though it may fall on deaf ears. The $ should not be the reserve currency of the world as they are as bankrupt as the UK. Obama will make the US population taxation slaves for decades. Gold and Silver should be the reserve, not currencies which are pretty much worthless in the medium term.

China is very scared of the dollar falling.

The US should devalue the dollar quick smart. That woud drive up domestic demand, remove much of the value of China’s holding of US treasury bonds, and weaken China’s growing influence, and at the same time, it would probably drive up the US price of drugs, which might be a good thing. Might even start a shooting match, which would not be a good thing.

…And will reduce anyone’s savings of U.S.D. to zilch, which will teach people a lesson for not obeying the U.S. constitution by using Fed bills.

You don’t think this has anything to do with the often-stated view that the RMB is kept at an artificially low value to boost Chinese exports? Didn’t Obama use the words “manipulating” and “currency” in the same sentence a while back?

The Chinese apparently don’t feel that letting the RMB rise is appropriate, so letting the USD fall is bound to piss them off just as much.

Can anyone explain how letting the USD fall against other currencies would harm US savers? A dollar will still be a dollar, and increasing the price of imports a little would seem to counterbalanced the threat of deflation. People keep talking about deflation and what it will do to the value of savings. I really understand very little of this, and am starting to believe that the so-called experts don’t either. It would be nice to at least understand the theory.

[quote]Can anyone explain how letting the USD fall against other currencies would harm US savers? A dollar will still be a dollar, and increasing the price of imports a little would seem to counterbalanced the threat of deflation. People keep talking about deflation and what it will do to the value of savings. I really understand very little of this, and am starting to believe that the so-called experts don’t either. It would be nice to at least understand the theory.
[/quote]

I won’t pretend to understand all the in’s and out’s…but my take is:

It’s no harm if your retirement/future purchases are in USD denominated. If you are a “foreign” currency saver who will purchase foreign currency denominated things, then you’re screwed. The nice thing about teh US is that it is self sufficient for many thing, so if the world trade came to an end tomorrow, and the dollar was worthless, you could still buy American.

Deflation: a dollar today is worth less than a dollar tomorrow. It does not hurt savers, it hurts debtors. However, since future income also decreases (lower price levels = lower income levels), it limits what you can save and is very hard to, “fix”, since it is hard to get people to spend if they expect prices to drop in the future. Inflation of the kind you describe, only leads to stag-flation since the inflation is only due to changes due to supply-side costs, not due to increased demand. Same demand curve, higher intercept on p due to costs, same or worse output.

This is all smoke to appease a domestic audience, and at this point not a real option. Chinese officialdom is under intense pressure from the Chinese “net”. If you recall, the Chinese started these sovereign funds that invested in financial institutions too early and promptly lost several score billion USD. People are very upset over this. Also, since they have a half-baked understanding of trade and capital account flows, (which like physics for every flow, there must be an equal and opposite flow the other way), they feel like the US has borrowed money from them and now they are watching the value of their USD savings drop.

The reality is this is the natural outcome of using a debased currency to implement mercantilist industrial policy. You can delay the change, but you cannot avoid it unless trade patterns change – and why would they? China knows this so that is why they put in thing like the new labor law and let the RMB appreciate 20+%. However, this was insufficient given the trade patterns and actually we are in the same place in terms of true value of the RMB. The longer you delay, the bigger the magnitude of the change. Well, here we are, the change has come.

[quote=“Loretta”]You don’t think this has anything to do with the often-stated view that the RMB is kept at an artificially low value to boost Chinese exports? Didn’t Obama use the words “manipulating” and “currency” in the same sentence a while back?

The Chinese apparently don’t feel that letting the RMB rise is appropriate, so letting the USD fall is bound to piss them off just as much.

Can anyone explain how letting the USD fall against other currencies would harm US savers? A dollar will still be a dollar, and increasing the price of imports a little would seem to counterbalanced the threat of deflation. People keep talking about deflation and what it will do to the value of savings. I really understand very little of this, and am starting to believe that the so-called experts don’t either. It would be nice to at least understand the theory.[/quote]

My take actually would be USD depreciating results in inflation, not deflation. An increase in money supply = more dollars available = less demand for currecy = USD depreciating. Increase in money also = more dollars available to buy same amount of goods, therefore each dollar is worth less.

Inflation is bad for savers, but good for people with fixed cost currency debt, i.e. mortgages or bank loans or sellers of T Slips to Communist countries :slight_smile:

where are the usual suspects?

Thought all of you cats would have chimed in by now.