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  • Dec 24, 2014
  • Updated: 6:03am
BusinessBanking & Finance

US warns China over yuan depreciation and market intervention

PUBLISHED : Wednesday, 09 April, 2014, 1:40am
UPDATED : Wednesday, 09 April, 2014, 1:40am

The United States warned China on Monday that the recent depreciation of the yuan could raise "serious concerns" if it signalled a policy shift away from allowing market-determined exchange rates.

Washington has been pressing Beijing for years to allow its currency to trade at stronger values. A weak yuan makes Chinese exports cheaper for US consumers, at the expense of American manufacturers. It also makes Chinese consumers less able to buy foreign goods.

Last month, US Secretary of the Treasury Jack Lew welcomed a decision by Beijing to allow the yuan to vary more against the US dollar in daily trading.

Monday's comments by a senior official from the Department of the Treasury suggest Washington is not completely sold on Beijing's intention to reduce intervention in exchange markets.

"If the recent currency weakness signals a change in China's policy away from allowing adjustment and moving towards a market-determined exchange rate, that would raise serious concerns," he said.

In comments that outlined US positions before meetings later this week of the International Monetary Fund and between Group of 20 nations, he noted the widening of the yuan's trading band came just after a drop in its value that coincided with reports of "considerable intervention" in exchange markets by Beijing.

The US also appears likely to pressure Europe at the meetings to act more decisively to fix its troubled banking sector.

The official said recent economic data from Europe showed the region was experiencing "chronic low inflation and weak demand". That appeared to be a nod to growing concerns that Europe's economy was so weak it risked falling into deflation.

"More needs to be done to support growth," he said.

The official had blunt words for other economic powers as well, saying Japan should avoid engaging in too much fiscal austerity.

He also chided emerging markets for going too slowly in adopting free-floating currencies.

"Resistance in many emerging markets to moving more quickly to market-determined exchange rate regimes is hindering the rebalancing needed to ensure a lasting, strong global recovery," he said.


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When the US dollar massively appreciates against other currencies,
those foreign countries are robbed by the US for the first time (like the massive capital flow back into the US in this year's EM crisis following the start of the Feb's QE tapering).
Then the US can later buy cheaply the foreign countries' assets, thereby robbing them for the second time.
That's why firstly, China should at present keep her dam of capital control intact, to prevent the first kind of robbery from happening to her,
and secondly, keep a relatively great amount of her foreign currency reserve ($3.8tn as of last December) in the form of US$ (imitating Japan in this respect),
to be able to preserve her real wealth and gain from the second part of the game.
Problem is, the Chinese (and Europeans) are more clever than the Japanese.
The Americans seem to have forgotten one thing.
A country’s monetary and foreign exchange policy is a main part of the country’s sovereignty and inner policy,
a central strategy to maintain the financial safety and continued development of the whole economy,
how can the policy be interfered with or directed by a foreign country,
especially if we consider the fact that now China exports more to the EM countries than to developed countries ?
In the future, it’s inconceivable that the US will use physical artillery force to defeat China, considering the massive death toll and immeasurable amount of wealth destruction on both sides of the Pacific.
Instead, in the coming battle for world hegemony, currency war (through the most-convenient and lowest-cost finance and trade channel) is the best mass-destruction weapon that can be employed by America to subdue China.
It’s best that China become the leading actor in the coming film: “Plaza Accord II”.
Once the yuan is kidnapped, and the Euro keeps on having its own problems, the 21st century will still be the American Century.
In a sense the currency war has already been going on for quite a period of time.
China’s main strength is her manufacturing power.
Through the yuan’s gradual revaluation against the US dollar over the years (and persistent wage rate increase, … ) she has been gradually surrendering the status of World Factory to her southern neighbours.
This is not the end of the story.
One day in the future, for some reason, the US dollar appreciates massively against the yuan (and other currencies).
It goes without saying that the American tourist can then play the same game in China (and elsewhere) once again.
This is one way to appreciate the meaning (and horror) of the so-called ‘Currency War’ !
Have you come across the following story?
In 2008, an American tourist arrived in China, using US$200,000 to exchange for 1.34 million yuan (suppose he could do so).
1 million yuan was used by him to buy an apartment to live in, the other 340,000 yuan was spent on eating, drinking, transportation, entertainment, sight-seeing, and having fun in China, in the subsequent years.
In 2012, to return to the States, he sold his apartment at a price of 2 million yuan.
Meanwhile the yuan has revalued against the US$ from 6.7 to 6.3.
2 million yuan could be exchanged for about US$320,000.
Which means, the guy spent 4 years happily in China, and returned home with a net gain of US$120,000.
Now you know why the US wants the yuan to keep on revaluing.
If the above US$200,000 is replaced by hundreds of billions of US$, that’s outright American robbery of China.
(From ‘The Great Decisive Battle’)


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