The undervaluation of the renminbi : EU point of view

[DAVOUT]

article


The undervaluation of the Chinese currency is not the only cause of the China competitiveness.

Seems reasonnable.





Edit: link fixed

[Main_Brain]

This Link does not work.
Not even with pasting it together

[DAVOUT]

I have edited the link; it works now but leads to the first page. The article is under the REUTER EDGE.

[Spiffor]

I don't understand these negociations. Of course, the US and the EU want China to reevaluate its currency. It is especially important for the EU which suffers from a too strong €. But there is something I don't get: why would the Chinese accept to reevaluate their currency? I see no reason for them to accept the USEU demands...

[chequita guevara]

Because if they don't they'll be hauled before the WTO and slapped with tariffs.

[Spiffor]

Originally posted by chegitz guevara
Because if they don't they'll be hauled before the WTO and slapped with tariffs.

Does the WTO have any authority when it comes to change rates?

[chequita guevara]

Originally posted by Spiffor
Does the WTO have any authority when it comes to change rates?

IIRC, they have authority over anything which is an impediment to fair trade.

[DAVOUT]

Originally posted by Spiffor
I don't understand these negociations. Of course, the US and the EU want China to reevaluate its currency. It is especially important for the EU which suffers from a too strong €. But there is something I don't get: why would the Chinese accept to reevaluate their currency? I see no reason for them to accept the USEU demands...

There are not negociations, only claims (from the US) and recommendation (from the EU).

You are absolutely right, the Chinese will only move when it will not hurt them, and this is implicitely recognized and accepted by Lamy. On the contrary, the US demand a reevaluation, as if it would solve their deficit problem, which is clearly not the case. As 50% of their import from China are driven by US firms, the end result would only be a wider deficit.

The WTO has no mean to act on the value of the yuan compared to the dollar until it could oblige a sovereign country to make its currency convertible, which is not the case, and will probably never be. And this is because the currency status has considerable effects on economic matters not directly linked to the international trade. For instance, you cannot oblige a developping country such as China, to allow the free circulation of money, because it would open the door to international speculation which is dramatically disruptive for a developping country.

[DAVOUT]

BBC today :

The news came as the International Monetary Fund said China's currency was not undervalued, countering US claims.

There was "no clear evidence" of substantial undervaluation - and in any case loosening the currency peg would make little difference to trade imbalances, the IMF said in its annual review of China's economy.

The IFM statement should help the US to correctly analyse the problem of the trade deficit.

[Tripledoc]

Would a revaluation of the chinese currency not mean that in order to do so they would have to sell a massive amount of dollars? How would that help the Euro. It would only further the weakening of the Dollar and as such strengten the Euro even more. Also since the price of oil is tied to the Dollar a falling Dollar would mean that OPEC would raise their oil prices. Where would the idea be in that?

[Kidlicious]

Originally posted by DAVOUT
BBC today :



The IFM statement should help the US to correctly analyse the problem of the trade deficit.

If changing the currency peg wouldn't change the trade balance ... wait what I'm I saying? This is just ridiculous. Exchange rates affect trade balances. It's elementary.

[Kidlicious]

Originally posted by Tripledoc
Would a revaluation of the chinese currency not mean that in order to do so they would have to sell a massive amount of dollars? How would that help the Euro. It would only further the weakening of the Dollar and as such strengten the Euro even more. Also since the price of oil is tied to the Dollar a falling Dollar would mean that OPEC would raise their oil prices. Where would the idea be in that?

A smaller trade deficit with China would strengthen the dollar. Trade deficits increase the flow of currency out of the country.

[DAVOUT]

The yuan is not convertible, consequently it can be reevaluated (or devaluated) by a decision of the Central Bank of China. There would be no direct mechanical effect on the US $, and little difference on the trade imbalance (as worded by the IMF) of the US; and still less on the EU.

The Euro is not strong currently, it just reflects the weakness of the dollar, in the same manner as gold does.

If the price of oil is raised in due proportion of the fall of the $, it would not change the fate of the world except for the US (and China). Precisely, it would widen the US trade deficit.

All that makes the reevaluation of the yuan hardly a solution to the trade deficit problem.

[DAVOUT]

Originally posted by Kidicious


If changing the currency peg wouldn't change the trade balance ... wait what I'm I saying? This is just ridiculous. Exchange rates affect trade balances. It's elementary.

That makes at least one point where you are in strong agreement with President Bush.

[Tripledoc]

But the artificially low Chinese currency forces the Japanese to secretly buy vast amounts of dollars to keep their Yen low and competitive. Hence if the Chinese strengthens the Dollar, the Japanese would then have to buy even more Dollars in order to stay competitive.