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One thing that I think is getting lost in this discussion is the role of intent on currency manipulation. Switzerland has the strongest currency in the world d
by chibg10 7y ago
One thing that I think is getting lost in this discussion is the role of intent on currency manipulation.
Switzerland has the strongest currency in the world due to the country's reputation for governmental and financial stability. This makes Swiss labor extremely expensive for reasons mostly outside of their control, and the Swiss government has tried (and largely failed) to remedy this. Technically, this is devaluation but given the circumstances and Switzerland's relatively small footprint in the labor market, it's understandable and fairly benign.
The Fed cutting interest rates in 2009 had the effect of weakening the USD relative to what it would have been. But the intent of the policy was not to steal a share of the export market, but rather to provide stimulus during a deep recession.
Japan has been in ultra-low growth and ultra-low inflation for decades. To fend off the threat of deflation and economic contraction, it ran the printing press and cut interest rates. Which, again, devalue the currency but stealing export share is not a major intent.
I'm not sure what the appropriate definition of "currency manipulator" should be but, while China's currency policy history is a strange and variable beast, yesterday's devaluation was clearly a different case than those above. And depending on how far you want to go back in history, there's an argument that the intent of some previous Chinese devaluations were aimed primarily at increasing its relative attractiveness as an exporter.
Its most recent history until yesterday was to prop up the RMB, so it may be fair to argue that now is a strange time to label them a currency manipulator. Given yesterday's events and their history in this area though, it's hard to make the claim that their currency policy is altogether ordinary either.
- zwkrt 7y agoMonetary policy has many, unrelated effects on the economy. Even if China were able to point to obvious, incontrovertible humanitarian reasons for its currency decision I’m sure the US would still be unkind. It seems that at the end of the day only realpolitik prevails.
- tempsy 7y agoJust saw from Bloomberg that China responded by strengthening the RMB to under 7. Futures seem to be responding positively...
- kasey_junk 7y agoNote, they acted to make the RMB stronger than the markets were pushing it. Dollars to donuts they get the “currency manipulator” label removed for that action...
- bluetwo 7y agoIf having two different exchange rates -- "offshore" and "onshore" -- doesn't say currency manipulator, I don't know what does.
- cetico 7y agoEvery currency has onshore and offshore rates. For example, you can buy dollars or Eurodollars, which is simple US currency kept offshore. Eurodollars have different exchange rates because they don't have the reserve requirements from the Fed. i.e: it's less regulated. The RMB has a heavier regulation whereby the exchange rate isn't allowed to fluctuate. This does increase the difference in value for the onshore and offshore currencies. But having that distinction does not by itself make it a currency manipulator.
- rihegher 7y agoWhere can i buy eurodollars?
- latchkey 7y agoI didn't know much about eurodollars until I used google and read this article, which seems quite good. https://www.investopedia.com/articles/active-trading/012214/introduction-trading-eurodollar-futures.asp https://www.investopedia.com/articles/active-trading/012214/...
- Bayart 7y agoIn terms of financial products, you can « buy » it through futures contracts (or options on futures). It's a pretty common product AFAIK, at least as far as FOREX goes.
- bluetwo 7y agoFor any other currency arbitrage keeps them the same.
- quantguy11959 7y agoThe main point behind the two currency system is to prevent money laundering. You can only convert offshore to onshore via state run banks. This also has the side effect of making it easier to control import and export flow thereby inflation. The comment below about separate interest rates has nothing to do with this discussion.
- weiser 7y agoSymbolic moving, and possible stepping stone to other actions. Technicalities don't matter.
- formercoder 7y agoOne pulls levers on the market, the other sets the market.
- rossdavidh 7y agoWhat an oddly balanced and rational post. You must be new to the Internet.