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I could not agree with you more, but I do have a simple explanation for the currency exchange regulations. The government is taxing exports by underpaying expo

by nickff 13y ago

I could not agree with you more, but I do have a simple explanation for the currency exchange regulations. The government is taxing exports by underpaying exporters for their goods, while collecting market prices from the foreign customers. The government achieves this by overstating the value of the Argentinian peso, which the exporters are forced to accept as payment (at government dictated exchange rates). This would be a problem if the government allowed citizens to purchase USD at the artificial (low cost per USD in pesos) price, so the government restricts USD purchases in Argentina. The Chinese government implemented this policy before Argentina, which is why they are always accused of manipulating their exchange rates.

wslh 13y ago
There are a lot of differences with China. For example, China produces a lot of goods locally where Argentina "can't" produce a reliable refrigerator... and depends on a lot of foreign components in every industry. Argentina, obviously, produces some high quality goods but in another scale.
rahimnathwani 13y ago
The alleged manipulation by China is the reverse: China has been accused, by western politicians, of keeping the value of its currency lower than it would be if freely floated. This, if true, would effectively be a subsidy for exporters: they receive dollars for exports, whilst paying (cheap) local currency for labour and rent.
- nickff 13y ago
  I apologize if I am not being clear, but this is precisely what Argentina does. Argentina keeps the value of its dollar much lower than its official exchange rate by giving exporters less pesos than the real exchange rate would dictate. The government pockets the extra USD. You could also look at this is as if the exporters got fair market exchange rates for the USD they earn, and the government took some of the pesos the exporters were given, and immediately converted them back into USD. The effect is the same, as the exporters end up with less money than they earned, and the government pockets USD. Overall, this reduces the resources available to people holding (the same number of an increasing pool of) pesos, thus devaluing the currency. The fixed official exchange rate also allows for less obvious increases in the money supply (inflation).
  - rahimnathwani 13y ago
    From Forbes: Argentina's black market offers some 10 pesos per dollar, instead of nearly seven at the fixed exchange rate. So, the open market value of a peso is about 0.10 USD. The official value is 0.15USD. The official value of 1 peso (0.15USD) is higher than the open market price (0.10USD). Thus the government is overvaluing the peso. In contrast, 1 CNY is currently worth (0.17USD), i.e. similar to the official value of 1 peso. However, some people argue that it should be worth much more (e.g. 0.25USD). In your example, exporters are getting screwed through an implicit tax. In my example, exporters are getting an implicit subsidy.
    - nickff 13y ago
      If the exporters are being subsidized, China would have to be depleting its foreign currency reserves for as long as the policy is in place.
      - rahimnathwani 13y ago
        China's trade surplus was more than 4 _trillion_ USD in 2013. Exporters use USD (which they receive from overseas buyers) to buy CNY. Those USD add to China's foreign currency reserves.
      - tomp 13y ago
        No; China is, through it's exporters, getting USD from abroad, not giving it away.
- seanmcdirmid 13y ago
  Parent is probably referring to a long time ago in the 90s, which indeed was a problem: you could get a better rate for your dollars on the black market than officially. The Chinese government finally normalized their currency mid/late 90s and the black market disappeared; the gov then realized that to support exporters, they actually needed to keep their currency artificially less valuable than more valuable.... Source: http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/yuanusdexchange.html http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/yuanusd... RMB was trading 1-1 with the dollar in '81, and started getting real about it in '94.

by nickff 13y ago

wslh 13y ago

There are a lot of differences with China. For example, China produces a lot of goods locally where Argentina "can't" produce a reliable refrigerator... and depends on a lot of foreign components in every industry. Argentina, obviously, produces some high quality goods but in another scale.

rahimnathwani 13y ago

The alleged manipulation by China is the reverse: China has been accused, by western politicians, of keeping the value of its currency lower than it would be if freely floated. This, if true, would effectively be a subsidy for exporters: they receive dollars for exports, whilst paying (cheap) local currency for labour and rent.

nickff 13y ago
I apologize if I am not being clear, but this is precisely what Argentina does. Argentina keeps the value of its dollar much lower than its official exchange rate by giving exporters less pesos than the real exchange rate would dictate. The government pockets the extra USD. You could also look at this is as if the exporters got fair market exchange rates for the USD they earn, and the government took some of the pesos the exporters were given, and immediately converted them back into USD. The effect is the same, as the exporters end up with less money than they earned, and the government pockets USD. Overall, this reduces the resources available to people holding (the same number of an increasing pool of) pesos, thus devaluing the currency. The fixed official exchange rate also allows for less obvious increases in the money supply (inflation).
- rahimnathwani 13y ago
  From Forbes: Argentina's black market offers some 10 pesos per dollar, instead of nearly seven at the fixed exchange rate. So, the open market value of a peso is about 0.10 USD. The official value is 0.15USD. The official value of 1 peso (0.15USD) is higher than the open market price (0.10USD). Thus the government is overvaluing the peso. In contrast, 1 CNY is currently worth (0.17USD), i.e. similar to the official value of 1 peso. However, some people argue that it should be worth much more (e.g. 0.25USD). In your example, exporters are getting screwed through an implicit tax. In my example, exporters are getting an implicit subsidy.
  - nickff 13y ago
    If the exporters are being subsidized, China would have to be depleting its foreign currency reserves for as long as the policy is in place.
    - rahimnathwani 13y ago
      China's trade surplus was more than 4 _trillion_ USD in 2013. Exporters use USD (which they receive from overseas buyers) to buy CNY. Those USD add to China's foreign currency reserves.
    - tomp 13y ago
      No; China is, through it's exporters, getting USD from abroad, not giving it away.
seanmcdirmid 13y ago
Parent is probably referring to a long time ago in the 90s, which indeed was a problem: you could get a better rate for your dollars on the black market than officially. The Chinese government finally normalized their currency mid/late 90s and the black market disappeared; the gov then realized that to support exporters, they actually needed to keep their currency artificially less valuable than more valuable.... Source: http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/yuanusdexchange.html http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/yuanusd... RMB was trading 1-1 with the dollar in '81, and started getting real about it in '94.