Just what we suspected: China lied
Well, China reneged on its new floating yuan policy. The AP reported today that China will keep its currency “basically stable and reasonable” just a few weeks after saying it would allow the yuan to float. After the June 21 announcement that “People’s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.” we questioned whether the intent was genuine. Less than three weeks later, it is clear China only made that announcement to deflect discussion of the exchange rate policy at the G-20 meeting.
How much did the renminbi appreciate since June 21? A whopping 0.75%.
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Brett Spurr has been on and around Wall Street since the age of 19, nearly half a lifetime ago. He helped make investment decisions for a $15 billion mutual fund complex. While locking horns with CEOs was fun, he now runs a personal financial planning firm helping individuals navigate their financial lives. Brett is a CERTIFIED FINANCIAL PLANNER ™ certificant and investment manager by day and a full-time geek who delights in debating all things financial or economic.
Karl Mamer is host of The Conspiracy Skeptic podcast, a 12-part look at conspiracies of today and the not too distant past. Karl is also the world’s greatest living proponent of Franglais. He also likes to bait Nigerian Bank Scammers and hosted his own podcast about teaching English in Seoul, South Korea. Karl lives in Toronto, Canada and works as a senior technical writer to pay the bills.
Julio Guardado is a former tech CEO who after surviving a tech start-up during the dot com bust decided to join the dark side and become an investment banker. While wining and dining CEO’s (we call it “locking horns”) is great, he enjoys getting inside their heads and companies even more. Julio also runs RV Investor, a web site that specializes in the recreational vehicle industry. Julio lives in Silicon Valley.
Jon Blumenfeld has been on and around Wall Street since 1989, as a trader and researcher in interest rates and their associated financial products. Most recently he was an Interest Rate Strategist at Bear Stearns and Co., where he was named to Institutional Investor Magazine’s All-America Fixed Income Research team for Interest Rate Derivatives in 2007.
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It was interesting to see how the mainstream media uncritically made the “floating yuan” front page news, while many economists and bloggers were highly skeptical. I wonder when mainstream media will learn to ask for critical opinions before posting political/economic propaganda?
What I haven’t understood is how this whole yuan trade can work in the long run. China buys US bonds to keep the yuan value down (or rather US$ value up). The US citizens will have greater purchasing power than the Chinese, and China can keep on exporting to the United States. The China trade surplus is used to buy more US bonds, and the circle continues. Everybody wins, right??? To me, something doesn’t feel right with this arrangement. It’s too simple. It feels like there is a bubble (or several) being blown up somewhere, but I’m not sure exactly where. Do you have any ideas about this? What will happen when the “harmonic” relation between China and the US is disturbed?