Send a Tweet
Most Popular Choices
Share on Facebook 2 Share on Twitter 1 Share on LinkedIn Share on Reddit Tell A Friend Printer Friendly Page Save As Favorite View Favorites
OpEdNews Op Eds

What the Latest Currency "War" is All About

By       Message Pepe Escobar       (Page 1 of 2 pages)     Permalink    (# of views)   1 comment

Related Topic(s): ; ; ; ; , Add Tags
Add to My Group(s)

Well Said 6   Must Read 3   News 2  
View Ratings | Rate It

opednews.com Headlined to H2 8/14/15

Author 73066
Become a Fan
  (183 fans)

Reprinted from Sputnik


(Image by Twitter)   Details   DMCA
- Advertisement -
>

It took the Bank of China to devaluate the yuan on two consecutive days -- moving within the 2 percent band that it's allowed to -- for the proverbial global financial banshees to go completely bonkers.

Forget the hysteria. The heart of the matter is that Beijing has stepped on the gas in a quite complex long game; to liberalize the yuan exchange rate; allow it to free float against the US dollar; and establish the yuan as a global reserve currency.

So this is essentially exchange rate policy liberalization -- not a currency "war," as the frenetic spin goes from Washington/Wall Street to Tokyo via London and Brussels.

- Advertisement -

Let's check some expert reaction

Former Morgan Stanley non-executive chairman in Asia, Stephen Roach, delivers the predictable Goddess of the Market orthodoxy, warning about the "distinct possibility of a new and increasingly destabilizing skirmish in the ever-widening global currency war. The race to the bottom just became a good deal more treacherous."

A note written by a group of HSBC analysts is more realistic; "The depreciation pressure on Asian currencies from China's action should fade as the nation isn't aiming at engineering a much weaker yuan. Doing so would contradict the goal of promoting greater global use of the yuan."

- Advertisement -

But it's Chantavarn Sucharitakul, the Bank of Thailand's assistant governor, who hits the nail on the head Asia-wide; "The long-term impact must be assessed as to whether greater flexibility of the yuan could benefit China's economic reform, while the depreciating yuan could be positive for China's economic growth, which would benefit regional trade as well."

The Bank of China itself, in a statement, stresses it will allow the markets to have more influence over the yuan exchange rate.

And crucially, it also stresses there is no economic basis for the devaluation, pointing to China's enormous current account surplus and humongous foreign exchange reserves.

So now it's time to rock the (wobbly) boat. Thus the "currency war" hysteria -- because the practical result, in the medium term, will be a new boost to Chinese exports.

When the US embarks on perennial quantitative easing (QE), that's OK. When the EU does QE as well, that's OK. But when the Bank of China decides it's in the best interest of the nation to let the yuan go down a bit instead of infinitely up, that's Armageddon.

Just do the math

- Advertisement -

Having the yuan track close to the US dollar served China very well -- until now. QEs in the EU and Japan led to a weaker euro and a weaker yen -- while the yuan remained stable against the US dollar.

Translation: since over a year ago, in June 2014, the yuan's real exchange rate has been the world's strongest, increasing by 13.5 percent. That was more than that of the US dollar (12.8 percent).

It was not hard for Beijing to do the math; the strong link with the US dollar was eroding China's competitiveness with top trading partners Japan and Europe.

Yet a simple 2 percent devaluation may not be enough to boost China's exports. After all, the yuan appreciated more than 10 percent over the past year relative to China's top trading partners.

Next Page  1  |  2

 

- Advertisement -

Well Said 6   Must Read 3   News 2  
View Ratings | Rate It

opednews.com

Pepe Escobar is an independent geopolitical analyst. He writes for RT, Sputnik and TomDispatch, and is a frequent contributor to websites and radio and TV shows ranging from the US to East Asia. He is the former roving correspondent for Asia (more...)
 

Pepe Escobar Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Go To Commenting
The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.
Writers Guidelines
Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
Support OpEdNews

OpEdNews depends upon can't survive without your help.

If you value this article and the work of OpEdNews, please either Donate or Purchase a premium membership.

STAY IN THE KNOW
If you've enjoyed this, sign up for our daily or weekly newsletter to get lots of great progressive content.
Daily Weekly     OpEdNews Newsletter
Name
Email
   (Opens new browser window)
 

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Why Putin is driving Washington nuts

You Want War? Russia is Ready for War

Why Qatar wants to invade Syria

All aboard the New Silk Road(s)

It was Putin's missile?

Where is Prince Bandar?