In a message dated 5/11/2006 8:54:20 P.M. Eastern Daylight Time,
[EMAIL PROTECTED] writes:
Yeah, I'm thinking of the peg but not imagining that unpegging would "fix"
it. Especially if part of the problem is that by pegging the RMB to the dollar
it doesn't so much rescue the dollar as it does weaken the RMB itself. The
US runs the printing presses and China underwrites the paper. It's still bad
money
To the contrary, the RMB won't be "weakened" but revalued upwards. The major
problem with this is that it would unleash deflationary pressures in the
Chinese economy because: 1-the revaluation or appreciation reduces the
domestic
currency prices of imported goods whose world market prices are given in
dollars, 2- there is a negative wealth effect as external dollar assets lose
internal currency value. 3 As the RMB appreciates it might discourage foreign
investment as Chinese assets look more expensive now, In sum the scare is of a
deflationary slump.
Of course, it is not as simple as saying" China "underwrites the US dollar".
Nope, China benefits enormously from expanded industrial export goods
production and the employment and income it generates. Of course, it has a
limit
and China has to look for more inward development soon.
C Senior
