When the Chinese floats the Renminbi what will happen.
Here are a few thoughts.
The Chinese won't float until their banks are in better shape but as they are due to join the WTO the clock is running on this. Some of China's massive dollar earnings have already been pumped into these banks to prepare them for foreign competition in their domestic banking market when they have joined the WTO.
When they float the biggest problem will be for the USA economy. Competition for natural resources will increase as the dollar falls against the Renminbi making it cheaper for the Chinese to satisfy domestic demand which is increasing at a far faster rate then export growth. As china has trade surpluses with most economies they will be very keen to deal in Renminbi with their Chinese trade partners.
The USA economies consumption of 43% of world production will be more difficult to maintain.
On flotation the adjustments will come quite quickly with a possible destabilising effect on USA growth as the dollar finds its new level.
As China is already subsidising the USA in effect by keeping the Renminbi at around 8.5, the math is easy to do - Are the subsidies being earned back in increased trade?
and/or market share.
Sooner or later the benefits of the flotation will be so overwhelming in favour of the Chinese people that it will be inevitable.
Is America ready?
No comments:
Post a Comment