7.21.2005

China's Currency

Econo-Girl's loyal readers may remember her prediction that China would never end its peg to the dollar. Ahem. It seems that China would end its peg to only the dollar. Now it will be pegged to 'a basket of currencies.' (Love that word 'peg')

What will be interesting is how this is approached. How will that formula be calculated? Essentially China is hedging its bets and loosening its ties to the U.S. economy. Has China lost faith in the dollar? Econo-Girl will keep her gimlet eye on the calculation.

Will China now undervalue its currency compared to everyone else too, and not just the dollar? Essentially, will the amount a yuan gets in dollars remain the same or go higher, even though the dollar is only a part of how the Chinese now value their currency?

What practical consumers can expect is that our prices will go up here in the States, which Econo-Girl happy that she bought that glass- stained front door recently, before the price went up. I'll let you know when Leisure Lad buys that one.

Supply shocks - like rising prices for clothes and other things made in China. That's what inflation is made of.

4 comments:

lewis_medlock said...

its about time.......!
It is all fine and dandy that folks can run to wally Mart and buy socks, window fans and tool sets at never before seen prices.....yes, alot of our stuff today is cheaper than it ever was in the past, even with hedonics, the CPI,and inflation thrown in....
But the deal breaker for me is, do I want to live like those people?
Do I enjoy the wages I earn, the benefits I have and the fair treatment I enjoy in the workplace?
I do.
If I wished to earn just a few dollars a day, work well past a reasonable retirement age and have no savings/pension fund when I retire then buying that stuff would be OK.
But its not.
LM

Econo-Girl said...

Good point. But isn't it a far better deal than what they had before? And let's remember that China is getting underbid now by some of its Southeast Asian neighbors. China is going to have a harder time of it now because of competing with Korea and having its goods more expensive here.

And who is going to pay for our federal deficit? China has been using those dollars we give them by lending it back to us to pay for the federal deficit. There will be large ramifications from this move by China. But somehow I don't think that the factory workers will see the benefit.

The Lazy Iguana said...

I will believe it when I see it! Econo-Girl, I still agree with your original conviction.

What is this "basket of currencies"? Is it the same basket from "Silence Of The Lambs" (it puts the lotin in the basket!)? What other currencies are in this basket? Can we see this basket?

I think this is just China babble, designed to make the USA happy.

Nothing will chance. You were right the first time.

Econo-Girl said...

Really, Iggy, it would be FASCINATING if you were right. And funny. Wouldn't it be just like the Chinese? The North Koreans pull that kind of stuff too. And we keep falling for it.