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China just let its currency float more it was more pegged to the dollar before. Also isn’t this a good thing for US consumers as it cancels out some of the trad

by rdtwo 7y ago

China just let its currency float more it was more pegged to the dollar before. Also isn’t this a good thing for US consumers as it cancels out some of the trade war stupidity

pkaye 7y ago
Does that mean their currency was overvalued before?
- addicted 7y ago
  Contrary to what you hear in the US, China has not been trying to devalue their currency for the past few years. In fact, they’ve been trying to strengthen it as they’ve been trying to build their domestic market and present the Remnibi as a dollar alternative. Admittedly China did indeed artificially weaken their currency to help exports in the past but this hasn’t been true for quite some time.
  - internet_user 7y ago
    Wrong. Yuan has been devalued by close to 10% since this April.
    - addicted 7y ago
      Well yeah since the tariff wars started. This article has a good explanation of what they have been doing. https://thefederalist.com/2017/07/03/china-secretly-manipulating-currency-make-yuan-stronger/ https://thefederalist.com/2017/07/03/china-secretly-manipula... China was keen on strengthening the yuan and were doing that for a couple of years, but the trade wars have shifted their calculations. The earlier strengthening gives them some additional leeway. I think the reason for this drop in the exchanges is because letting the yuan drop is China’s way of saying they’re in for a fight. A stable yuan was basically a precondition for trade talks, and this coming right after the last round means the hope for a resolution seems remote at best. I still don’t understand how China expects to win the trade war. The US has a lot more firepower. But I guess leadership incentives are not aligned with the country and it’s peoples incentives (which is true in the US as well).
      - TheBranca18 7y ago
        What is winning the war mean in this case? Because the producers in the US, such as soy bean farmers, are not winning anything. Consumers and producers generally don't seem to win trade wars. Especially when tariffs come into play.
        internet_user 7y ago
        The final prize in this war is who gets to write the rules of the world order, who gets to become/remain the hegemony. Economics/trade is just one battleground of many. Soybeans are so inconsequential to this, in the larger picture of things. Sure, it sucks for farmers. Would you rather have rich soybean farmers and a social credit score assigned to you personally for posting your opinions openly?
        TheBranca18 7y ago
        I feel like you're offering a false choice. The point of the tariffs is to punish China for a trade deficit and make companies produce things more in the United States according to this administration. Companies aren't changing things as a result of these tariffs as far as I can tell. So currently, consumers and producers are being punished and the administration isn't getting what it wants either. I just struggle to see the point. Personally I think it's more of an anti-globalist segment of the administration, as a trade deficit isn't necessarily a bad thing.
        addicted 7y ago
        Good point. There is no winning in this war. I’d say I’m definining “winning” at this point as preventing further damage.
    - yfzhou 7y ago
      China is doing less propping-up of Yuan than before because its currency reserve was draining for years. The market rate should be even lower if China lets it float.
internet_user 7y ago
It doesn't let anything float. It's a managed "float". It's rather very simply to devalue your own currency - just run the printing press a bit more and flood the market with freshly "printed" zeroes.
- greatpatton 7y ago
  Doesn't always work, look at Switzerland. They keep using this strategy to minimize the impact of the strength of the CHF versus all the other currencies, and currently Switzerland is holding more than 750 billions of $ of currency reserve (only Japan and China hold more...). Desplite this, CHF is still gaining value versus all the other currencies.
  - internet_user 7y ago
    CHF is a rather unique country, with a unique situation and a very unique central bank. Do you really think the SNB couldnt print a quadrillion franks tomorrow and drive it into the ground if they wanted to?
    - greatpatton 7y ago
      Yes they could but this will just destroy Swiss economy and likely create out of control inflation. Doing this is always a risky policy. SNB has told many time that they will use unlimited means to keep the value of the Swiss francs however in 2015 they had to give up on the promise to keep a 1/1.2 EUR/CHF exchange rate. What history told us is that even hedge fund (like Soros in 1992) can bring a central bank to its knees.
  - notathing 7y ago
    It's weird for such a small country to have such big reserves. Why not spend some on infrastructure/whatever? Maybe they use the reserve as some sort of geo-political insurance against possible shocks (whatever those might be)
    - internet_user 7y ago

by rdtwo 7y ago

China just let its currency float more it was more pegged to the dollar before. Also isn’t this a good thing for US consumers as it cancels out some of the trade war stupidity

pkaye 7y ago

Does that mean their currency was overvalued before?

addicted 7y ago
Contrary to what you hear in the US, China has not been trying to devalue their currency for the past few years. In fact, they’ve been trying to strengthen it as they’ve been trying to build their domestic market and present the Remnibi as a dollar alternative. Admittedly China did indeed artificially weaken their currency to help exports in the past but this hasn’t been true for quite some time.
- internet_user 7y ago
  Wrong. Yuan has been devalued by close to 10% since this April.
  - addicted 7y ago
    Well yeah since the tariff wars started. This article has a good explanation of what they have been doing. https://thefederalist.com/2017/07/03/china-secretly-manipulating-currency-make-yuan-stronger/ https://thefederalist.com/2017/07/03/china-secretly-manipula... China was keen on strengthening the yuan and were doing that for a couple of years, but the trade wars have shifted their calculations. The earlier strengthening gives them some additional leeway. I think the reason for this drop in the exchanges is because letting the yuan drop is China’s way of saying they’re in for a fight. A stable yuan was basically a precondition for trade talks, and this coming right after the last round means the hope for a resolution seems remote at best. I still don’t understand how China expects to win the trade war. The US has a lot more firepower. But I guess leadership incentives are not aligned with the country and it’s peoples incentives (which is true in the US as well).
    - TheBranca18 7y ago
      What is winning the war mean in this case? Because the producers in the US, such as soy bean farmers, are not winning anything. Consumers and producers generally don't seem to win trade wars. Especially when tariffs come into play.
      - internet_user 7y ago
        The final prize in this war is who gets to write the rules of the world order, who gets to become/remain the hegemony. Economics/trade is just one battleground of many. Soybeans are so inconsequential to this, in the larger picture of things. Sure, it sucks for farmers. Would you rather have rich soybean farmers and a social credit score assigned to you personally for posting your opinions openly?
        TheBranca18 7y ago
        I feel like you're offering a false choice. The point of the tariffs is to punish China for a trade deficit and make companies produce things more in the United States according to this administration. Companies aren't changing things as a result of these tariffs as far as I can tell. So currently, consumers and producers are being punished and the administration isn't getting what it wants either. I just struggle to see the point. Personally I think it's more of an anti-globalist segment of the administration, as a trade deficit isn't necessarily a bad thing.
      - addicted 7y ago
        Good point. There is no winning in this war. I’d say I’m definining “winning” at this point as preventing further damage.
  - yfzhou 7y ago
    China is doing less propping-up of Yuan than before because its currency reserve was draining for years. The market rate should be even lower if China lets it float.

internet_user 7y ago

It doesn't let anything float. It's a managed "float". It's rather very simply to devalue your own currency - just run the printing press a bit more and flood the market with freshly "printed" zeroes.

greatpatton 7y ago
Doesn't always work, look at Switzerland. They keep using this strategy to minimize the impact of the strength of the CHF versus all the other currencies, and currently Switzerland is holding more than 750 billions of $ of currency reserve (only Japan and China hold more...). Desplite this, CHF is still gaining value versus all the other currencies.
- internet_user 7y ago
  CHF is a rather unique country, with a unique situation and a very unique central bank. Do you really think the SNB couldnt print a quadrillion franks tomorrow and drive it into the ground if they wanted to?
  - greatpatton 7y ago
    Yes they could but this will just destroy Swiss economy and likely create out of control inflation. Doing this is always a risky policy. SNB has told many time that they will use unlimited means to keep the value of the Swiss francs however in 2015 they had to give up on the promise to keep a 1/1.2 EUR/CHF exchange rate. What history told us is that even hedge fund (like Soros in 1992) can bring a central bank to its knees.
- notathing 7y ago
  It's weird for such a small country to have such big reserves. Why not spend some on infrastructure/whatever? Maybe they use the reserve as some sort of geo-political insurance against possible shocks (whatever those might be)
  - internet_user 7y ago