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Home Publications Blogs Beat the Press The Rise of the Chinese Yuan Causes Other Asian Currencies to Rise as Well

The Rise of the Chinese Yuan Causes Other Asian Currencies to Rise as Well

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Wednesday, 09 February 2011 06:11

The WSJ reported that the Chinese yuan rose sharply against the dollar today and that this increase led to sharp rises in other Asian currencies as well. Put this one in the "who could have known?" category.

Many of the economists cited by major news outlets are undoubtedly surprised by this sequence of events. They have minimized the importance of a rise in the yuan to the U.S. trade deficit by insisting that the United States would simple turn to other producers as a source of imports.

Those who understand the economy pointed out that other Asian currencies tend to follow the yuan, so that a rise in the value of the yuan would likely also lead to a rise in the value of other currencies against the dollar. This means that the rise in the yuan is likely to reduce U.S. imports from China and other countries, thereby reducing imports and creating jobs.

Comments (5)Add Comment
Only Private Business Owners Understand Economics
written by izzatzo, February 09, 2011 7:43
Those who understand the economy ...


Only three kinds of people understand the economy:

Those who've run a business, those who run government like a business and those who understand that everytime government makes it more expensive to run either one, there's either less of it supplied or less of it demanded.

Foreign exchange rates have nothing to do with it. The answer is to ban all regulations that suppress exports and competition.

Stupid liberals.
...
written by skeptonomist, February 09, 2011 9:21
The original rise of the yuan or RMB does seem to have been a real "who could have known" phenomenon. It rose against the dollar fairly continuously from 1980 to 1994:

http://research.stlouisfed.org/fred2/series/EXCHUS?cid=282

and since 1994 has only come down. The rise happened during several presidential administrations and Treasury Secretaries and the last big jump of 50% in 1994 occurred in the tenure of LLoyd Bentson, not Rubin or Summers.

There may have been some genius in the Forbidden City plotting the rise of the RMB, but US officials probably were unaware how important it would be, since the China trade was still small even in 1994. It was probably viewed more politically than economically, as giving a boost to capitalism in China (democracy, not so much). This essentially pre-existing exchange rate is probably more important in the trade balance than any general dollar policies of the Clinton or Bush administrations.

Of course it was the job of Rubin and subsequent Treasury Secretaries and even more the Fed Chairman, The Usual Suspect, to understand what was happening as the trade and the trade deficit increased, but they were much more interested in deregulation and financial innovation.
...
written by dunkelblau, February 09, 2011 10:18
Gee, thanks Ben!
http://online.wsj.com/article/...6888.html
(warning: Socal residents need to see the footnote at the bottom)
so that's what that little blue thing does
written by dunkelblau, February 09, 2011 10:21
[url= http://online.wsj.com/article/...76888.html
(warning: Socal residents need to see the footnote at the bottom)

...
written by kharris, February 10, 2011 9:27
The only people who understand the economy are those who see it as something other than a system for gratifying their own selfish wants.

Stupid izzatso

Meanwhile, it's probably worth noting that there is a cost to establishing commercial arrangements. Producers outside of China that sell inputs to Chinese manufacturers will want to keep doing so, even as the yuan rises, to avoid the cost of replacing those commercial arrangements with arrangements elsewhere. Even if other currencies did not tend to move with the yuan, the US could expect a trade benefit from a stronger yuan. And of course, existing commercial arrangements are one reason that the currencies of countries which supply China tend to vary with the yuan.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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