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Now here’s the post I’m sure you’ve all been waiting for…
Should China revalue the RMB and will it?
Of course I don’t know the answer to this question but a post by my favorite blogger* D- Squared brought up a good point. The post was actually about the latest round of WTO negotions, but he claimed that in general developed western countries want to free inverstment oppurtunities and cash flow because this helps them more than the developing countires. But I’m not sure this is really always true.
Take a RMB, it helps china by keeping it’s products and labor cheap, but it also helps the U.S. because most of the cheap products come to the U.S., keeping inflation down and letting us keep our current spending binge going. The people really hurt by the low RMB are countries like mexico, who have to compete directly with an artificially low RMB.
I know I don’t know shit about economics, but neither does the bush administration, which is why I find it fun to figure out why the Bush administration is pushing for the revaluation. As I see it there are two possibilities.
1. The Bushies really believe all that freemarket crap they preach and want china to float the RMB to help mankind.
2. It’s just a political ploy so they can say they are doing something about unemployment. (Paul Krugman had a good article on this point of view awhile back, but the bitches at the NYtimes are trying to make me pay for the article so I can’t link it.)
I think that China should revalue the RMB. There is definitly inflationary pressure on it as more companies put more money into china the price of a Yuan should go up. So china is exporting deflation to the rest of the world. China will have to revalue the currency or else something bad will happen (something bad always happens when econonic forces are misaligned). So I don’t think it’s neccassarily a bad thing to buy up some RMB right now.
Of course this all might be about the trade deficit and the fact that China is one of the major buyers of dollarss these days, but I don’t really understand that.
*I’m ok with the fact that I’m lame enough to have a favorite blogger
update: Oh Oh, Stiglitz has a piece on the trade deficit in the guardian!