Waiting, Waiting
It seems like everybody who follows events in Asia is waiting for the next shoe to fall, or to be more accurate, the next two shoes to fall. The first shoe is the much-anticipated revaluation of the Chinese currency, the renminbi. The second is North Korea testing an atomic bomb. Let’s take them one at a time.
Speculation over revaluation of the renminbi reached a fever pitch at the beginning of the month. It was rumored that Beijing would begin its much-anticipated move during the series of holidays following May 1 known as “Golden Week.” Speculators piled on, renminbi forwards went to the moon, but the week passed with no announcement.
About ten days ago The New York Times reported that the renminbi had actually been allowed to float against the dollar 20 minutes in late April. The writer did not know if this was a deliberate testing of the waters or just a technical glitch. Lo, the yuan did rise from 8.29 to 8.20 during those 20 minutes.
The story started on the front page of the business section and then jumped inside, running on and on. It’s extraordinary that this newspaper would devote so much ink to a 20-minute revaluation. One wonders how the Times will play the story when the Beijing finally acts – banner headlines on the front page? Tell me this isn’t going to be the Chinese Century.
It seems as if the entire financial community is paralyzed, waiting for Beijing to make its move. Some analysts say it is one reason why the dollar seems to have stalled as opposed to continuing its downward path like it is supposed to do. China should get the thing out of the way for no other reason than to put the market out of its collective misery.
Meanwhile, China stands accused of being a serial manipulator of its currency, deviously plotting to give itself a trade advantage. The U.S. Senate voted a month ago to impose a 27.5% tariff on Chinese goods across the board if it did not do something to raise the price of its currency, and presumably the price of its exports
Manipulation is a strange word to apply in this case . We are after all talking about a currency peg. The renminibi doesn’t budge from a benchmark that was set years ago. If it is undervalued, it is because it is hitched to a currency, the dollar, that has been steadily weakening for reasons that have little to do with China.
The other shoe yet to fall may come in the form of a big thump in the northeast corner of North Korea, where, it is widely reported, Pyongyang is thought to be planning to conduct a nuclear test. North Korea claims to have such weapons. The only thing left is for them to prove it.
Before that happens, if it happens, Washington wants Pyongyang to return to the six-party talks, although it is hard to imagine what it hopes will be accomplished. Defending its strategy, President George W. Bush said at his press conference on April 28, “It’s better to have more than one voice sending the same message to Kim Jong Il.”
Same message? Maybe the president thinks the six nations (North and South Korea, Japan, China, Russia and the U.S.) have the same message discipline as his own political message machine. In fact, the reason why the six party talks are failing is because none of the six is “on message.”
All the parties have different, sometimes conflicting aims. Washington, basically, wants to see Kim Jong Il and his regime disappear. South Korea’s long-term goal is reconciliation, and it doesn’t want to do anything that might make North Korea into more of a basket case than it already is. Japan wants an honest accounting of its citizens kidnapped in the 1970s.
And China, supposedly the linchpin? Beijing wants to be seen as being helpful, cooperative and a good world citizen by hosting the talks. But I doubt that its leaders worry very much about North Korea getting a couple pop-gun atomic bombs, and they certainly don’t want to have to be put in a position of vetoing a sanctions bill in the U.N.
Indeed, ignoring repeated appeals from Washington, Beijing served notice Monday [May 9] that it has no intention of imposing any serious economic sanctions on its neighbor. “Normal trade should not be linked with the nuclear issue,” said a foreign ministry spokesman. So much for China. Back to you, Mr. Bush.
Speculation over revaluation of the renminbi reached a fever pitch at the beginning of the month. It was rumored that Beijing would begin its much-anticipated move during the series of holidays following May 1 known as “Golden Week.” Speculators piled on, renminbi forwards went to the moon, but the week passed with no announcement.
About ten days ago The New York Times reported that the renminbi had actually been allowed to float against the dollar 20 minutes in late April. The writer did not know if this was a deliberate testing of the waters or just a technical glitch. Lo, the yuan did rise from 8.29 to 8.20 during those 20 minutes.
The story started on the front page of the business section and then jumped inside, running on and on. It’s extraordinary that this newspaper would devote so much ink to a 20-minute revaluation. One wonders how the Times will play the story when the Beijing finally acts – banner headlines on the front page? Tell me this isn’t going to be the Chinese Century.
It seems as if the entire financial community is paralyzed, waiting for Beijing to make its move. Some analysts say it is one reason why the dollar seems to have stalled as opposed to continuing its downward path like it is supposed to do. China should get the thing out of the way for no other reason than to put the market out of its collective misery.
Meanwhile, China stands accused of being a serial manipulator of its currency, deviously plotting to give itself a trade advantage. The U.S. Senate voted a month ago to impose a 27.5% tariff on Chinese goods across the board if it did not do something to raise the price of its currency, and presumably the price of its exports
Manipulation is a strange word to apply in this case . We are after all talking about a currency peg. The renminibi doesn’t budge from a benchmark that was set years ago. If it is undervalued, it is because it is hitched to a currency, the dollar, that has been steadily weakening for reasons that have little to do with China.
The other shoe yet to fall may come in the form of a big thump in the northeast corner of North Korea, where, it is widely reported, Pyongyang is thought to be planning to conduct a nuclear test. North Korea claims to have such weapons. The only thing left is for them to prove it.
Before that happens, if it happens, Washington wants Pyongyang to return to the six-party talks, although it is hard to imagine what it hopes will be accomplished. Defending its strategy, President George W. Bush said at his press conference on April 28, “It’s better to have more than one voice sending the same message to Kim Jong Il.”
Same message? Maybe the president thinks the six nations (North and South Korea, Japan, China, Russia and the U.S.) have the same message discipline as his own political message machine. In fact, the reason why the six party talks are failing is because none of the six is “on message.”
All the parties have different, sometimes conflicting aims. Washington, basically, wants to see Kim Jong Il and his regime disappear. South Korea’s long-term goal is reconciliation, and it doesn’t want to do anything that might make North Korea into more of a basket case than it already is. Japan wants an honest accounting of its citizens kidnapped in the 1970s.
And China, supposedly the linchpin? Beijing wants to be seen as being helpful, cooperative and a good world citizen by hosting the talks. But I doubt that its leaders worry very much about North Korea getting a couple pop-gun atomic bombs, and they certainly don’t want to have to be put in a position of vetoing a sanctions bill in the U.N.
Indeed, ignoring repeated appeals from Washington, Beijing served notice Monday [May 9] that it has no intention of imposing any serious economic sanctions on its neighbor. “Normal trade should not be linked with the nuclear issue,” said a foreign ministry spokesman. So much for China. Back to you, Mr. Bush.
posted by Todd Crowell at 11:29 AM
1 Comments:
Should the world have monetary discipline? It was thought so after WW2. Currency pegs to the dollar were introduced globally to help prevent the economic competition that led up to WW2.
However this monetary discipline, worldwide, was scrapped by the US in the early 1970's because the nation needed somehow to fund both the Vietnam war and LBJ's social programmes (printing huge amounts of money was the solution chosen).
China is really returning to this discipline by pegging the renmimbi to the dollar - but the US is threatening China with huge tariffs as a reprisal. Monetary discipline is also being reintroduced by the European Union, with the euro.
Floating or fixed exchange rates is an important issue for this year's G8 in Scotland to discuss. The banking industry isn't too keen on fixed exchange rates; they mauled the UK taxpayer in 1992 when that nation tried to join the euro. The events surrounding 'Black Wednesday', when the UK Treasury used up $40bn in reserves in the failed attempt to prop up the pound, hobbled progress in moving to fixed rates in order to protect taxpayers.
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