China to crash U.S. dollar?

[Tingkai]

What do you mean by "it"? In other words, what do you think would be extremely costly to the Chinese economy?

[LordShiva]

Originally posted by Tingkai
What do you mean by "it"? In other words, what do you think would be extremely costly to the Chinese economy?

Originally posted by LordShiva
printing a ton of money

[Tingkai]

They've been printing money to maintain the peg for over 15 years.

So how has this policy been "extremely costly" to China?

[LordShiva]

The scale on which it will be required is nothing like the last 15 years.

[Colonâ„¢]

Mugabe economics

[Tingkai]

The scale on what? Are you talking about printing more money? Why do you think China would have to suddenly print more money?

[LordShiva]

Originally posted by Colonâ„¢
Mugabe economics

Mugabenomics

[Tingkai]

Originally posted by Colonâ„¢
Mugabe economics

Different situation. Mugabe pours currency into the economy with no abandon. China does not.

[LordShiva]

Originally posted by Tingkai
The scale on what? Are you talking about printing more money? Why do you think China would have to suddenly print more money?

To maintain a peg on a freefalling currency.

[Tingkai]

The U.S. dollar has grown much weaker in the past 5 years, down about 25% to the euro since 2003.

The Chinese yuan peg is still in place, the Chinese economy is booming, inflation is not excessive and unemployment is low.

So how has the peg policy been detrimental to China?

[LordShiva]

I'm sure an "economic nuclear option" exercised on teh dollar is intended to inflict more than a 25% depreciation over four years.

[Barnabas]

Argentina is doing something similar to what China does, the Argentine peso, without state intervention would be around

1 dollar = 2,40 pesos , but because the state wants to help exporters it keeps it around 3,15


The economy has grown much, the international reserves too, and the exports too, but Argentina has over 10% inflation per year (this year probably around 15%) because of all the pesos they have to print to keep the policy.

Does China have problems with inflation?

[Tingkai]

You are making a mistake in thinking that if China dumps its dollar holdings, it would automatically have to buy more dollars to maintain the peg. This is not the case.

If the dollar exchange rate to free-floating currencies falls to a point where the U.S. economy goes into a major recession, Americans might end up buying less from China. That means fewer people would want to sell U.S. dollars for yuan. So the PBOC might end up printing fewer yuan, not more.

This outcome is fine for China because Beijing is trying to slow down economic growth. 11 percent is too high.

On the other hand, dumping dollars might make Chinese goods more competitive (as the price of imports from other countries rise). But the dollar dump would damage the U.S. economy so Americans have less money to spend. It is difficult to say whether Americans might buy more, or less from China.

Even if the PBOC prints more yuan to buy U.S. dollars, the PBOC is not just dumping yuan into the economy. It is also vacuuming yuan out of the economy to keep inflation under control.

This is not high-level economics, but it is also not basic economics. So do you understand what is going on here?

[Dauphin]

Originally posted by Tingkai
The U.S. dollar has grown much weaker in the past 5 years, down about 25% to the euro since 2003.

The Chinese yuan peg is still in place, the Chinese economy is booming, inflation is not excessive and unemployment is low.

So how has the peg policy been detrimental to China?

I thought the Yuan had appreciated in the same period and removed the strict peg in favour of a basket of currencies.

[Tingkai]

Originally posted by Barnabas
Argentina is doing something similar to what China does, the Argentine peso, without state intervention would be around

1 dollar = 2,40 pesos , but because the state wants to help exporters it keeps it around 3,15


The economy has grown much, the international reserves too, and the exports too, but Argentina has over 10% inflation per year (this year probably around 15%) because of all the pesos they have to print to keep the policy.

Does China have problems with inflation?

China's inflation is about 4.5 percent, relatively acceptable.

The Chinese government currency out of the economy by selling bonds (banks give cash to PBOC for a bond which means less cash in the economy) or by forcing banks to keep higher cash reserves in their vault, which again pulls money out of the economic markets.

Does Argentina have a trade surplus or deficit? That could explain the higher inflation there.