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The peg is only to keep it from strengthening (unlike some countries that try to keep their currency from sinking). Depending on which country is trying to use

The peg is only to keep it from strengthening (unlike some countries that try to keep their currency from sinking). Depending on which country is trying to use yuan as a reserve currency (export based economies vs import based ones), they might actually find this feature useful to stay competitive.

mensetmanusman 5y ago
The peg is a subsidy for the world. I.e. those working under that currency regime should be making more money and have higher purchasing power. If the population was educated enough to know they were being stolen from, ‘Office Space’-style, they would throw their leaders out. This is one reason the great firewall of China is so important, and I expect Russia to embrace that umbrella soon.
- berdario 5y ago
  > If the population was educated enough to know they were being stolen from... This is basically the same argument used by cryptobros and libertarians to criticize inflation. I think there are pretty obvious tradeoffs with letting your currency amass purchasing power: probably it would shrink the amount of exports (which means that a lot of people might find themselves without a job) and it would make it harder to get a mortgage. How do you propose that these negative effects would be mitigated?
- allisdust 5y ago
  May be but what additional things are chinese going to buy from outside their country even if the yuan is higher. Almost every single thing is manufactured/produced inside their own country. The only things they need from outside are raw materials, energy and food (I'm ignoring semiconductor industry for a moment which they already consider as their own little island)
- csomar 5y ago
  Maybe if the peg was not set, then those working under that currency regime would be "not working". I don't think the Chinese are subsidizing the world for no reason; and I don't think they are the smartest person in the room either.
- beaunative 5y ago
  That's only going to matter if they are buying outside stuff (like Oil). It does not matter to domestic market.
kasey_junk 5y ago
Bigger than the peg are the problems with moving the yuan out of your bank accounts once it’s in China. Their currency controls are some of the tightest in the world and getting more so since COVID.
- DrBazza 5y ago
  We'll just see a repeat of the Deutsche Bank laundromat: https://www.theguardian.com/business/2019/apr/17/deutsche-bank-faces-action-over-20bn-russian-money-laundering-scheme https://www.theguardian.com/business/2019/apr/17/deutsche-ba...
- brobinson 5y ago
  There are ways around it: https://en.wikipedia.org/wiki/Panda_bonds https://en.wikipedia.org/wiki/Panda_bonds
  - kasey_junk 5y ago
    There are. They are still denominated in yuan though so you have to fx them through an illiquid fx market that suffers from currency controls. Further the rules for whether you can or how much you can repatriate the proceeds from this bonds changes ~yearly at the whim of an opaque bureaucracy and they are very new instruments comparatively. All that’s to say the yuan needs to be liberalized or companies have to invent new finance operations before China takes over the finance sphere. That doesn’t happen fast.

mensetmanusman 5y ago

The peg is a subsidy for the world. I.e. those working under that currency regime should be making more money and have higher purchasing power. If the population was educated enough to know they were being stolen from, ‘Office Space’-style, they would throw their leaders out. This is one reason the great firewall of China is so important, and I expect Russia to embrace that umbrella soon.

berdario 5y ago
> If the population was educated enough to know they were being stolen from... This is basically the same argument used by cryptobros and libertarians to criticize inflation. I think there are pretty obvious tradeoffs with letting your currency amass purchasing power: probably it would shrink the amount of exports (which means that a lot of people might find themselves without a job) and it would make it harder to get a mortgage. How do you propose that these negative effects would be mitigated?
allisdust 5y ago
May be but what additional things are chinese going to buy from outside their country even if the yuan is higher. Almost every single thing is manufactured/produced inside their own country. The only things they need from outside are raw materials, energy and food (I'm ignoring semiconductor industry for a moment which they already consider as their own little island)
csomar 5y ago
Maybe if the peg was not set, then those working under that currency regime would be "not working". I don't think the Chinese are subsidizing the world for no reason; and I don't think they are the smartest person in the room either.
beaunative 5y ago
That's only going to matter if they are buying outside stuff (like Oil). It does not matter to domestic market.

kasey_junk 5y ago

Bigger than the peg are the problems with moving the yuan out of your bank accounts once it’s in China. Their currency controls are some of the tightest in the world and getting more so since COVID.

DrBazza 5y ago
We'll just see a repeat of the Deutsche Bank laundromat: https://www.theguardian.com/business/2019/apr/17/deutsche-bank-faces-action-over-20bn-russian-money-laundering-scheme https://www.theguardian.com/business/2019/apr/17/deutsche-ba...
brobinson 5y ago
There are ways around it: https://en.wikipedia.org/wiki/Panda_bonds https://en.wikipedia.org/wiki/Panda_bonds
- kasey_junk 5y ago
  There are. They are still denominated in yuan though so you have to fx them through an illiquid fx market that suffers from currency controls. Further the rules for whether you can or how much you can repatriate the proceeds from this bonds changes ~yearly at the whim of an opaque bureaucracy and they are very new instruments comparatively. All that’s to say the yuan needs to be liberalized or companies have to invent new finance operations before China takes over the finance sphere. That doesn’t happen fast.