Who is in charge of regulating the US$?

[DAVOUT]

If you consider

China's criteria would be safety, liquidity and profitability, in that order

the reserves in US$ will not be dumped (safety), but rather not increased anymore (as long as other monetary instruments as liquid as the US$ are available), then seasonnably and progressively reduced (profitability).

[Tingkai]

Originally posted by Oerdin
The Chinese have a problem. The US companies invest big in China creating jobs and then export their goods to the US. This leads to a lot of Chinese holding US dollars. They now have to do something with those dollars and if they dump them then they won't be able to sell nearly as much junk in the US meaning there will be fewer export jobs in China. They're stuck unless they find someone else to buy their stuff.

Your statement is completely flawed.

[xvdravarvx]

The Chinese have a problem. The US companies invest big in China creating jobs and then export their goods to the US. This leads to a lot of Chinese holding US dollars. They now have to do something with those dollars and if they dump them then they won't be able to sell nearly as much junk in the US meaning there will be fewer export jobs in China. They're stuck unless they find someone else to buy their stuff.

This quote is right because if the Chinese wish to dump their US dollars they must find a buyer for those US dollars. If everyone sees that the Chinese are selling their dollars the price for the dollar will go down internationally thereby sinking into the profits of holding those dollars. This will be less money that can be used in industry and any further purchases by America for Chinese products will increase in expense. American flags made in China instead of being $5 will now be $100 and less people will be willing to purchase them.

American firms currently invested in China would see their profit margins fall and attempt to pull out putting more of a hurt on Chinese industry.

I do also believe that the yuan is pegged to the dollar so you have a falling yuan and it would be interesting to see which one hit the floor first.

[Dinner]

Originally posted by Urban Ranger
Ask KH, nye all about those unfair practices the US uses. Free trade is only something the US uses in attempts to gain access to markets overseas, not something they believe in.

Hey, we can't help it that shrub is a lying, cheating, opportunistic piece of pig filth. In fact most of us hate him and wish he'd just go to jail already.

[Tingkai]

Aye-yeah.

The RMB is peg within a narrow band to the U.S. dollar. If the Chinese central bank dumps U.S. dollars it has no effect on the RMB-$ peg because the value of the RMB relative to the greenback is artificially maintained.

If China dumps U.S. dollars, then the values of the U.S. dollar and the RMB fall relative to other currencies, all else being the same.

The cost of Chinese goods in the U.S. would remain the same because the peg remains unchanged. The cost of goods from other countries increases in the U.S. because the U.S. dollar has become weaker. As a result, the U.S. would buy more, not less, from China because Chinese goods have become relatively less expensive compared to the now more expensive goods from other countries.

Meanwhile, the cost of Chinese and American exports to other parts of the world becomes cheaper because the dollars and the RMB have fallen in value. So dumping U.S. dollars makes Chinese goods more competitive on the international market, not less.

Simple, really.

[DaShi]

So the Chinese have been dumping their dollars and not foolishly buying them up. Makes sense.

[Colon™]

1. It's no longer pegged to the dollar exclusively, it's pegged to a basket of currencies.

2. How the hell do you think a peg is maintained, but by buying and selling foreign currency until the targeted exchange rate is reached?

[DAVOUT]

Originally posted by xvdravarvx



This quote is right because if the Chinese wish to dump their US dollars they must find a buyer for those US dollars. If everyone sees that the Chinese are selling their dollars the price for the dollar will go down internationally thereby sinking into the profits of holding those dollars. This will be less money that can be used in industry and any further purchases by America for Chinese products will increase in expense. American flags made in China instead of being $5 will now be $100 and less people will be willing to purchase them.

American firms currently invested in China would see their profit margins fall and attempt to pull out putting more of a hurt on Chinese industry.

I do also believe that the yuan is pegged to the dollar so you have a falling yuan and it would be interesting to see which one hit the floor first.

The idea that the decline of the US$ value would be more detrimental to China than to the US is probably wrong. What can be understood is that China has levers with powerfull effects on it, and has no intent or obligation to be as neutral or cooperative with US interests on that matter that Japan was and still is.

[DAVOUT]

Originally posted by Colon™

2. How the hell do you think a peg is maintained, but by buying and selling foreign currency until the targeted exchange rate is reached?

The peg concept aims to avoid the market and to give artificially a value to the national currency. It necessitates a full currency control, which was the case in China and is progressively reduced.

[Colon™]

The value of the renminbi vs the dollar and other currencies is determined by controlling the monetary in- and outflows. By dumping US dollars, the Chinese central bank would automatically increase the value of the renminbi vs that currency, contrary to what Tingkai appears to believe.

[Urban Ranger]

Originally posted by DaShi
But they didn't make the claim here. You did. Shouldn't you be able to back up your own statements? And you say that the US doesn't believe in free trade. Can you back up your claims?

The otbot is eeriely on target:

wooah! what have you been smoking?

I was pointing out the ongoing softwood trade dispute between the US and Canada, its next door neighbour and a close ally. It wasn't that hard to understand.

[Tingkai]

Colon, the flaw in your thinking is that you wrongly assume that the value of the RMB is set by the market. It is not. It is set by the Chinese central bank.

If people want to buy RMB, they must pay the rate set by the Chinese central bank. China is able to do this because it operates a trade surplus which in some respects means an excess demand for the RMB that allows the Chinese central bank to remain in the driver seat in setting the price for the RMB.

As for the basket of currencies, officially this is true, but as I know, the basket is heavily weighted to the U.S. dollar. So effects of dumping the U.S. dollar would generally remain as I have said.

[Colon™]

And how do you think the Chinese central bank is able to set the exchange rate? It were to just dictate a rate the black market would be simply uncontrollable. Hence it buys billions and billions of US currency every month. Why else do you think China has arrived to the point it has official reserves worth $850 billion?

[DAVOUT]

Originally posted by Colon™
And how do you think the Chinese central bank is able to set the exchange rate? It were to just dictate a rate the black market would be simply uncontrollable. Hence it buys billions and billions of US currency every month. Why else do you think China has arrived to the point it has official reserves worth $850 billion?

With US$ received in payments of Chinese exports, China Central Bank buys Treasury bonds. The main part of the $850 billions reserves is made of US Treasury bonds. In other words, the Chinese Central bank does not buy dollars.

[xvdravarvx]

The value of US treasury bonds are linked to the dollar. A dump of that scale would be quite smelly and hurt all involved.

I agree that it would hurt the US, but not as much as some think. Our standard of living would by necessity go down as much of it is based on our imports. Imports would become more expensive so we could buy less.

Of course, if we buy less, that by necessity means that less is being sold by nations that are dependant on exports to the US.

It would hurt China a lot too and cause just as many problems and that isn't in their interests at this juncture.