Hu Xiaolian, deputy governor at the Chinese central bank, has released a paper which suggests it's soon time for China to peg the yuan to a basket of foreign currencies, rather than the U.S. dollar alone. This especially makes sense for China given that, going forward, the U.S. might not the voracious consumer it once was. Thus tying itself at the hip to the dollar might not be as useful as it was before. Hu Xiaolian: Compared with pegging to a single currency, the exchange rate regime with reference to a basket of currencies will help adjust exports and imports, current account, and balance of payment in a more effective manner.
This especially makes sense for China given that, going forward, the U.S. might not the voracious consumer it once was. Thus tying itself at the hip to the dollar might not be as useful as it was before.
Hu Xiaolian:
Compared with pegging to a single currency, the exchange rate regime with reference to a basket of currencies will help adjust exports and imports, current account, and balance of payment in a more effective manner.
I am somewhat disappointed that this site has not picked up on the impact of the yuan tether break to other Pacific currencies. Australia will likely take a hit in the commodities - pushing their property bubble into a burst. Further, there is a big push to pay off debt coupled with ETS (emission trade schema). In New Zealand, there is a big bump in general service tax that is hitting around the same time that the ETS hits. Now, if you un-peg the yuan and it surges up, the pacific region will collapse (and I mean like a tree falling).
is this accurate?
And Australia? Their economic success of recent years is at least in part built on commodity sales to China. I can well imagine that a decline in the commodity trade does enough damage to burst the AU property bubble.
Of course, on the other hand, if we assume China manoeuvres in such a way as to keep it's economy buoyant it is still going to need raw materials and I'm unclear who the competitors to AU are and in what position they are to take advantage of exchange rate shifts.
For example, the Foxconn site (up to 800,000 employees) is seemingly leaving the mainland (will still be in Taiwan), but they will pass their business to other sites they control in other nearby countries. It doesn't make sense that this would be bad for them (in purely Serious economic terms, of course.) Never underestimate their intelligence, always underestimate their knowledge.
Frank Delaney ~ Ireland
