If the euro and the dollar stay at the same level, then an appreciation in the value of the renminbi means that both the US and Europe (in theory) can export more to China.
However, the suspicion about various recent changes to the Chinese currency peg basket is that the strategy from their side is to see a situation where they take some more imports from the US, but export to the EU at roughly current levels. This of course implies that the euro will change in value against the dollar...
That's another understatement. As AP says, (my emphasis)
China, the world's third-largest economy, escaped the worst of the global financial crisis by ordering $1.4 trillion in bank lending and government stimulus.
I would like to try my hand at a 3-way model of trade, reserves and currency valuations... The brainless should not be in banking -- Willem Buiter
I would like to try my hand at a 3-way model of trade, reserves and currency valuations...
The brainless should not be in banking -- Willem Buiter
So maybe AP is totally ignoring the EU since Germany's GDP is less than China's. The brainless should not be in banking -- Willem Buiter
Viewing the EU as a single unit.
GDP (millions of USD) 1 European Union 15,990,000 2 United States 14,270,000 3 Japan 5,049,000 4 Brazil 1,482,000 5 Canada 1,319,000 6 Russia 1,255,000 7 India 1,243,000 8 Australia 920,000 9 Mexico 866,300 10 South Korea 800,300
Viewing the EU as 27 units.
GDP (millions of USD) 1 United States 14,270,000 2 Japan 5,049,000 3 China 4,758,000 4 Germany 3,235,000 5 France 2,635,000 6 United Kingdom 2,198,000 7 Italy 2,090,000 8 Brazil 1,482,000 9 Spain 1,438,000 10 Canada 1,319,000
Is it really appropriate to count the member states separately when it's clear that the EU is a single economic unit? Particularly after the Greek rescue, and the likely creation of new EU financial institutions. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
One could make a case the Eurozone can be treated as a single entity for analytical purposes. With the UK still "pounding" along by itself ... the EU nowise.
I most have lost it while editing out the individual European states.
It should be third with $4.758 trillion. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
Of course, it is much higher if its PPP, but I wouldn't want to do the whole EU on PPP, I'd just use the World Bank PPP figures to scale. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
The World Bank list aggregates the Eurozone, at 5% less GDP than the US and 20-25% of world GDP.
The CIA world fact book aggregates the European Union, at 10% larger than the US and 25-30% of world GDP.
I go with the World Bank list since the Eurozone is the sensible aggregation. The brainless should not be in banking -- Willem Buiter
Regardless of the comparison with the the United States, the Eurozone dwarfs the Japanese and Chinese economies. And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg
... but because of the exchange rate policy always looks smaller when going to market exchange rates. And the exchange rate has slowly shifted since the dollar peg was switched to a currency basket peg, so which year is used is important when using market exchange rates. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
To Model trade, reserves, and currency valuations you'll need some kind of Flow Analysis which indicates Turbulence.
And if Mandelbrot is right and current prices are Initial Condition Sensitive ...
[ATinNM's Crystal Ball of Doom™ Technology]
On China's currency peg and potential policy actions « naked capitalism
On China's currency peg and potential policy actions A post by Edward Harrison In reading Scott Sumner's take on the China currency peg dilemma, I see that both he and Paul Krugman hit on the fundamental problem in the debate: reserves. Everyone is talking about the peg as if relaxing the peg will be the magic bullet to America's current account problem. But this is clearly not the case. If China were to unilaterally revalue it's currency, the Chinese would start buying fewer dollars incrementally. Part of the benefits of revaluation would accrue to Chinese export competitors in Europe (principally Germany) and in Asia (depending on their currency policy response). As US economic policy would be unchanged, US imports would switch from China to its competitors without any benefit accruing to the US. If the Chinese revalued, but then also bought euros, selling dollar assets, a Yuan revaluation would effectively be a US dollar depreciation against both the Yuan and the euro (not to mention against other Asian countries again depending on whether they move in concert with the Chinese). In this case, the US would be able to reduce its current account deficit. (**Note: I changed this section to more accurately reflect the mechanics.) Either way, the policy aim appears to be to force the Chinese to effect a US dollar depreciation - and this is what has the Chinese so outraged.
A post by Edward Harrison
In reading Scott Sumner's take on the China currency peg dilemma, I see that both he and Paul Krugman hit on the fundamental problem in the debate: reserves. Everyone is talking about the peg as if relaxing the peg will be the magic bullet to America's current account problem. But this is clearly not the case.
If China were to unilaterally revalue it's currency, the Chinese would start buying fewer dollars incrementally. Part of the benefits of revaluation would accrue to Chinese export competitors in Europe (principally Germany) and in Asia (depending on their currency policy response). As US economic policy would be unchanged, US imports would switch from China to its competitors without any benefit accruing to the US.
If the Chinese revalued, but then also bought euros, selling dollar assets, a Yuan revaluation would effectively be a US dollar depreciation against both the Yuan and the euro (not to mention against other Asian countries again depending on whether they move in concert with the Chinese). In this case, the US would be able to reduce its current account deficit. (**Note: I changed this section to more accurately reflect the mechanics.)
Either way, the policy aim appears to be to force the Chinese to effect a US dollar depreciation - and this is what has the Chinese so outraged.
From what European perspective independent of the ¥RMB/€ exchange rate did the ¥RMB gain value ... PPP, Chinese trade weighted currencies, European trade weighted currencies, World trade weighted currencies? all four? I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
