NOTE: I've included the link from the IMF to preface this blog. Interesting read.
A slowboat from China
2 of 3-Part Series on this page:
The Chinese will likely have the attitude, "If it ain't broke, don't fix it!" Controlling their currency's valuation, whatever they've done - apparently has worked for them. Huge trade surpluses, largest holder of foreign currencies, etc. Why would they change what they've been doing? I can only think of one thing - that is the world stops buying their cheap exports. Ain't happening. Are they going to increase the costs of their exports by allowing their currency to valuate? Not likely. At least not appreciably or quickly.
Of course the US is practicing a "benign support" of Chinese valuation to prolong, postpone and/or reduce debt payments. But, we're borrowing faster than we're paying! LOL. So, that "benign" support doesn't hold much water imo. The US is just trying to buy time and postpone the inevitable - a collapse of the dollar.
The Chinese are smarter than this and is not falling for de-valuation criticism and IMF and other pressures. Obviously, China is playing the game smartly. And, while they are continuing to buy short term Treasuries to keep the dollar and the US government effectively propped up, you can bet that they are also making otherwise good use of their dollar holdings and other fiscal strategic planning.
The IMF calling for rich countries to loan more to poor countries? Well, certainly he is not talking about the US - so broke it can't pay attention, much less loan money it doesn't have to poorer countries. (Though we are somehow still - go figure!) Is he talking about China loaning monies? Surely, that must be it. And, doesn't that sort of roll out the welcome mat for China's currency to be more the global standard? At least a key element in the much talked, new SDR's currency basket?
But, again - why would China want to do that? Well, they will play the game carefully; but, I see a couple of positive things for them:
1. Rigid devaluaton to continue keeping export costs down. Few other countries can produce so much for so little. You have to hand it to them - and we have. They run a lean ship, with a conserving, well-conditioned populace of 3,000,000,000 people. People who are likely happy just to eat - no sports cars, no MTV is needed there much. Moving 3 billion people to a consumer appetite won't happen quickly. Remember, they are conditioned to have little or want much. Otherwise, they may find themselves executed for rocking the applecart.
2. But, there could be some clear advantages for China with an SDR basket weighted with the Renminbi. Their currency could become more powerful, compared to the dollar. Global trade could become geared towards their currency away from the dollar. Imagine the ramifications if China became the lender of choice around the world? Instead of keeping the US's drunken consumer nation propped up, but rather helping emerging countries through loans and trade? Afterall, there is only 300 million folks in the US, right! That leaves roughly another 2 to 3 billion potential customers around the globe. And, slowly but surely, that's what China is doing - gathering new markets for which to export. A sweet spot in the IMF's new SDR basket and loans around the world and eventually dependence on US trade will wane.
For now, China will continue to move cautiously, at least until it has built adequate, sound international relationships for new outlets to support their economy as US consumption dwindles and as long as they are able to resolve or rid themselves of their plummeting dollar holdings.
It's a slow process, but one that is moving forward faster than many consider. Of course, there are other obstacles - producing quality products, energy to supply manufacturing - and along with that goes investment in R&D, infrastructure - all things which China is reportedly doing, but perhaps not full-throttle.
It's an old country - been around for an awful long time. It has its own way of doing things, slow and sure. As the dollar's value continues to plummet, oil prices will find a way to increase - despite the poor American contracting jobless economy. Somewhere there, in that mix, we'll see the SDR basket loaded with the Renminbi and some new world clout. Clout the US squandered.
...and the ol' Chinese slowboat is apt to stay at full sail - with or without the US.
