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So, now we are going to hear a lot about how China should let the renminbi float freely, let the market set the price etc. Anyone here knows whether any of the

by flexie 11y ago

So, now we are going to hear a lot about how China should let the renminbi float freely, let the market set the price etc. Anyone here knows whether any of the western currencies truly float freely? Don't all western central banks and/or governments intervene? Does the dollar float freely? Euro?

dageshi 11y ago
The big currencies like the euro and dollar mostly do. That's not to say that government and central bank policy doesn't have an effect, central banks influence rates with interest rates and quantitive easing, during the Bush presidency a law he passed regarding taxation levels on profits held outside the US contributed to the dollar strengthening. But the degree to which the dollar, euro and pound can fluctuate vs each other is massive compared to the yuan.
altcognito 11y ago
The dollar does float freely, it is only indirectly influenced by interest rates and I believe (Financiers to correct later) the purchase of bonds. Typically, The Fed tries to maintain low inflation -- a measure of the purchasing power -- not a measure of value against other currencies. Manipulating your currency value against other currencies may be a legit complaint.
mmanfrin 11y ago
The main difference is that laws in China generally prohibit the buying of foreign currency (except for importers) -- causing a situation where Chinese companies within China have to exchange the USD/Euro/Whatever currencies they receive for exports in to yuan. In Europe/the US, companies and citizens can hold on to that foreign reserve, which means that strong-handed efforts to peg a currency can rapidly tank the value of the local currency as confidence wanes. In China, there's no escape from the Yuan, so citizens just have to take the devaluation and loss of purchasing power.
bpolania 11y ago
The main difference is that the Chinese government restricts or blocks several types of transactions, western central banks try to influence the market using specific policies, so it depends on what you define as "intervention", but in general terms Chinese currency do float freely but the government has more power to change its value artificially, for example, there's no "official" price of the US Dollar or the Euro, the Fed doesn't decrees a price for its currency, it can't do that because firms in the US are independent from the central government, on the other hand the Chinese government can set whatever official price they want and since it has almost complete control over the bigger firms it can force the market to accept it at least as a reference price, they have used that power in the past to keep their currency low and keep Chinese exports as competitive as possible

by flexie 11y ago

dageshi 11y ago

The big currencies like the euro and dollar mostly do. That's not to say that government and central bank policy doesn't have an effect, central banks influence rates with interest rates and quantitive easing, during the Bush presidency a law he passed regarding taxation levels on profits held outside the US contributed to the dollar strengthening. But the degree to which the dollar, euro and pound can fluctuate vs each other is massive compared to the yuan.

altcognito 11y ago

The dollar does float freely, it is only indirectly influenced by interest rates and I believe (Financiers to correct later) the purchase of bonds. Typically, The Fed tries to maintain low inflation -- a measure of the purchasing power -- not a measure of value against other currencies. Manipulating your currency value against other currencies may be a legit complaint.

mmanfrin 11y ago

The main difference is that laws in China generally prohibit the buying of foreign currency (except for importers) -- causing a situation where Chinese companies within China have to exchange the USD/Euro/Whatever currencies they receive for exports in to yuan. In Europe/the US, companies and citizens can hold on to that foreign reserve, which means that strong-handed efforts to peg a currency can rapidly tank the value of the local currency as confidence wanes. In China, there's no escape from the Yuan, so citizens just have to take the devaluation and loss of purchasing power.

bpolania 11y ago

The main difference is that the Chinese government restricts or blocks several types of transactions, western central banks try to influence the market using specific policies, so it depends on what you define as "intervention", but in general terms Chinese currency do float freely but the government has more power to change its value artificially, for example, there's no "official" price of the US Dollar or the Euro, the Fed doesn't decrees a price for its currency, it can't do that because firms in the US are independent from the central government, on the other hand the Chinese government can set whatever official price they want and since it has almost complete control over the bigger firms it can force the market to accept it at least as a reference price, they have used that power in the past to keep their currency low and keep Chinese exports as competitive as possible