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This is one of the few articles on HN that I read the whole way through. Good job whoever wrote it. The interesting thing here is that the case is made that Ch
by cletus 7y ago
This is one of the few articles on HN that I read the whole way through. Good job whoever wrote it.
The interesting thing here is that the case is made that China can (and does) manipulate its currency and that devaluing one's currency is what has led to the shift of manufacturing jobs from the developed world to China (and other places) but it also notes that this suppression of currency value is becoming increasingly difficult.
Doesn't this support the argument that currency manipulation is ultimately time limited?
On a side note, I always like to point people to this [1] on the subject of free trade, specifically the conflation between free trade and free movement of capital.
[1] http://economixcomix.com/home/tpp/ http://economixcomix.com/home/tpp/
- merpnderp 7y agoMaybe, but what happens to the US federal budget once trade balances become more neutral and the demand for federal debt drops through the floor? If this is time limited, the US federal budget, and by proxy the US economy, is time limited.
- joshuafkon 7y agoThank you so much - I’m so glad you enjoyed it! If you’re interested in this topic I highly recommend “The Great Rebalancing” by Micheal Pettis. A really good book that looks at how currency manipulation and other factors have created imbalance in the global economy. I’ve also written a book which touches on this - but focuses more on the massive sovereign debt burdens that have been created in large part though these trade imbalances - particularly in an aging world. https://www.cassandracapital.net/books https://www.cassandracapital.net/books
- mooreds 7y agoIf you like Pettis, you may also want to subscribe to his blog: https://carnegieendowment.org/chinafinancialmarkets/ https://carnegieendowment.org/chinafinancialmarkets/ I have enjoyed his perspective for years.
- joshuafkon 7y agoHe has an excellent blog - he’s also active on Twitter. I believe he’s @michaelxpettis
- dragonsh 7y agoExcellent article, have one question, besides economics, the main reason a country can produce cheaply is dependent on highly productive labour, non union structure and friendly labor laws for industries. This is one of the reason besides Japan, Korea, Germany and China other countries did not fair that well. How do economist put value to this intangible forms? Every country manipulate currency to some extent including USA. So why not revamp the system completely.
- mooreds 7y agoCheck out the "Impossible Trinity": https://en.wikipedia.org/wiki/Impossible_trinity https://en.wikipedia.org/wiki/Impossible_trinity A country can have two of the following three w/r/t its currency (but not all three) a fixed foreign exchange rate free capital movement (absence of capital controls) # the USA likes this, or rather investors in the USA do an independent monetary policy # most everyone wants this China chose fixed rate and independent monetary policy, the USA chose free capital movement and independent monetary policy.
- hencq 7y agoGreat article! I was not aware of China's need for dollars due to dollar denominated debt. One question I still have is how/why they ended up with dollar denominated debt as opposed to debt in RMB? Also, who currently holds this debt?
- deleted 7y ago[deleted]
- himlion 7y agoBecause the interest rate on RMB denominated debt would be (much) higher, since there is a significant currency risk.
- deleted 7y ago[deleted]
- melling 7y ago“Recently China allowed their currency to fall below the key level of 7 yuan per dollar.“ China isn’t devaluing their currency, they are supporting it at its current level and artificially keeping it above 7. When they stop supporting it, it decreases in value. Where would their currency go if they stopped propping it up?
- varjag 7y agoDo they? All complaints I heard so far is CCP keeps yuan artificially cheap to prop the exports.
- CharlesColeman 7y agoThey have in the past (to fuel/build their export-driven economy), but I think things might have changed recently with the trade war.
- dragonsh 7y agoTrade war is one reason, other is external debt in USD. This is explained in great details in article that China needs 100 billion dollars every year to service its external USD debt. So they don't want to let CN¥ fall in value significantly.
- simonh 7y agoThe really pivotal change was the financial crisis. Before that the Yuan was at over 8 to the dollar.
- deleted 7y ago[deleted]
- seanmcdirmid 7y agoThat hasn’t really been true since before the Asian financial crisis.
- s1artibartfast 7y agoI think you have it backwards. If they stop supporting it, it will go down towards 6 yuan per dollar. If you own or want to buy a yuan, 1/6 USD is more value than 1/7 USD, hence the term devalue.
- simonh 7y ago>...China can (and does) manipulate its currency and that devaluing one's currency is what has led to the shift of manufacturing jobs from the developed world to China... That's not what the article says, it only really addresses recent events. The main reason goods manufactured in China have historically been cheap is that Chinese labour and land is very inexpensive in absolute terms. They had huge amounts of land that was under-utilised and hundreds of millions of rural people with little or no economically valuable work to do, with very low standards of living. That's the basic source of China's manufacturing cost advantage. It's also not true that China has consistently devalued their currency, they have frequently acted to prop up it's value especially since the financial crisis. Before 2007 the Yuan was much weaker, at over 8 to the dollar. The recent slide in the Yuan was a result of the latest tariffs. China didn't act to devalue it, they simply stopped acting to prop it up. So overall yes, a relatively weak yuan has served China well, but much of that weakness is due to structural economic reasons. Labour and land was cheap due to low labour and land utilisation. Labour was also cheap due to very minimal standards of living. Manufacturing capacity was cheap due to enormous economies of scale. Those aren't a recipe leading to a naturally strong currency.
- underdown 7y agoSo you're saying the yuan hasn't been pegged to the dollar all these years? This is revisionism.
- kasey_junk 7y agoThe yuan is not pegged to the dollar in the traditional sense of the term. China is actually fairly opaque about how they set their rates but claim it’s against a basket of currencies. Here is a good discussion on it: https://www.cfr.org/blog/so-china-pegging-dollar-or-basket https://www.cfr.org/blog/so-china-pegging-dollar-or-basket
- deleted 7y ago[deleted]
- Despegar 7y agoIt was pegged but they pegged it at a number that was stronger than it would otherwise be. China fears capital flight more than anything, and rich people in China would absolutely sell their yuan for dollars or euros in an instant if they could. Capital controls and the peg are why real estate in China is a bubble. There's no other place for people to put their savings. Rich people who know better don't trust the CCP.