And, incidentally, is this fact:

Under a fixed exchange rate system, the surplus country has more power to determine policy stance than the deficit country.

a part of the reason that the Bretton Woods system collapsed? That the US was no longer willing to play ball in a system that favoured surplus countries when it went from being a surplus to a deficit country due to its colonial adventure in Indochina?

- Jake

Friends come and go. Enemies accumulate.

Up to the creation of the euro and arguably beyond - let's say up to some arbitrary psychological point where the euro looked (not any more) like it was ready to be "the new reserve currency" (2007 perhaps?) then there was no serious option for oil producers to price in anything but dollars.

Further, the Chinese economy, as a prime manufacturing site currently organised around importing large volumes of raw materials to feed the factories is (% wise) much more vulnerable than the US to cost-push.

Of course this gets complicated because how much of the "cost-push" in China gets passed on to the US because you can't change the mix of US-China trade that quickly (lots of trade internal to companies).

Abstractly if one nation was dependent and the other nation was not, there would be a different ... but China is dependent on imported materials - maybe less oil, but of course more coal, and given rapid urbanization more iron ore and steel.

China is already striking a balance between capture of export markets and cost of essential imports. If it fights to maintain a stable US$ exchange rate while the US counter by discounting the US$ against the ROW, the ¥RMB drops against the ROW.

With the Chinese about where they want to be and the US above where we would want to be under a neo-mercentalist stance, they'd be experiencing problems while we were still experiencing gains.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.