China Severs Its Currency's Link to Dollar

AP ^ | 7/21/05 | STEPHANIE HOO

[RandDisciple]

The Democratic Party is celebrating. Promoting devaluing the dollar helps their constituency and hurts the savers of this country; Republicans. Union factory workers benefit marginally at the cost of all U.S. consumers having to pay higher for imported goods. Republicans whose savings are in the U.S. dollar, have just lost world purchasing power. It drives me crazy that a Republican administration is promoting devaluation of our national currency and that many conservatives on this forum are cheering this news.

[Tatze]

And HUGH. And very series.

[RandDisciple]

A stronger yuan helps America's greatest economic and military competitor. China will be able to buy the raw materials for their factories cheaper now. That is a much bigger cost component than their cheap labor. They will remain more competitive than us and they will be able to procure global assets at a cheaper cost. The American consumer will pay a higher price for their everyday items and thus have a relatively lower standard of living.

The biggest promoters of devaluing the dollar has been the Democrats. History has never shown an instance where devaluing a countries currency has made them stronger. The reverse has always been true.

[Boiler Plate]

Why didn't the Chinese do this earlier then?

[BeHoldAPaleHorse]

"A stronger yuan helps America's greatest economic and military competitor."

A weak yuan helps China...no, a strong yuan helps China...

Will the Sinophreaks PLEASE come up with one story and stick to it?

[connectthedots]

This is much ado about nothing. A significantly undervalued yuan does nothing but hurt China in the long run. china is subsidizing the lifestyle of much of the rest of the world. In the end, it will lead to the implosion of communism in China.

I've been saying for years that companies like Wal-Mart will eventually bring China to its knees.

[jb6]

Wow, never thought this would happen.

[SoothingDave]

if $2.75 gasoline isn't wrecking our economy, a 2.1% rise in the cost of a $12 shirt at walmart won't.

Yeah, but now all the dollar stores have to become "$1.02 stores."

SD

[SoothingDave]

The move could nonetheless help Chinese exporters' profits by cutting costs for imported oil, iron ore and other raw materials whose prices have been surging in dollar terms, Gong said.

I think they need dollars to buy these materials. Outside of China the Yuan is worthless.

SD

[SoothingDave]

Now they can manipulate their currency to fit their expansionist plans.

What do you mean "now"? They have been manipulating their currency, by holding it artificially pegged to the dollar. They are just beginning to let it be ruled by market forces.

SD

[kidd]

The real reason:

Chinese leaders, unaccustomed to capitalism, frequently asked Washington why the value of the dollar kept changing.

Officials in Washington answered, "Fluctuations".

Chinese leaders responded, "Oh, yeah? Well fluc you white guys! No more link to dollah."

[Southack]

President Bush has broken the Chinese peg!

Outstanding!

Kudos to Treasury Secretary Snow, too.

[Grampa Dave]

Thanks for the best BOL of the month re China economics:

"Chinese leaders, unaccustomed to capitalism, frequently asked Washington why the value of the dollar kept changing.

"Officials in Washington answered, "Fluctuations".

"Chinese leaders responded, "Oh, yeah? Well fluc you white guys! No more link to dollah."

[Marie Antoinette]

Hmmm, didn't we talk about this in the last month or so?

[SAJ]

Well, one had probably better give some ''credit'' for this to the PRCCB.

Keep in mind, there's far more to this move than the price of oil, or import/export-- Chinese banks are the most illiquid of any major nation on earth, and the maintenance of yuan at clearly insupportable levels was making the banks more so over time.

Shouldn't be too long before we see the beginnings of bailouts of significant players in this group by the ChinCom gov't.

[Southack]

The Chinese spent $160 Billion propping up the U.S. Dollar last year. In return, they got a $110 Billion trade surplus.

Losing $50 Billion per year on a $1 Trillion GDP is just not something that they could have kept up forever. Ditto for the other Asian central banks that were spending at very nearly that level to aid China in propping up the Dollar.

Although the Chinese may not report it (accurately, anyway), this move will do the bizarre near-contradictory things of reducing their losses while slowing down their economy.

For China, this means more profit, but slower growth. Frankly, the world was saturated with Chinese exports, anyway. I'd guess that China will use the savings (from no longer having to prop the Dollar up so high for their Yuan peg) to directly bail out their problem banks and state-run companies. No doubt that they've wanted to free up Billions for such things.

For the U.S. this means that we'll export more and import less...because the Dollar has to fall now.

[Vision Thing]

One potential problem about this: With a cheaper dollar relative to the yuan, Chinese companies may be in better position to takeover American companies.

China may have unpegged the yuan in response to their two failed bids for Unocal and Maytag yesterday.