The Chinese government's decision to re-value the yuan yesterday has
elicited a wide range of opinions on the effect of the change and what
might come next. Here are some reactions from academics and other
writers of economics blogs, collected by Ezra Marbach and published on The China Stock Blog earlier today, with links to the full articles:
From Brad Setser's Web Log:
....Too small in my view to have much of an economic impact, in anyFrom General Glut's Globblog:
way. On trade flows. Or on capital flows. I would
still bet on a further revaluation.
....For once, I agree with Stephen Jen:
"This was the tiniest and smallest move China could make,'' said
Stephen Jen, head of global currency strategy at Morgan Stanley in
London. "The motivation for making such a small move is due to
political concerns and that the Chinese could buy some time with the
....The most important fallout from the renminbi revaluation is not goingFrom New Economist:
to be felt in international trade markets, but instead in international
bond markets. As more revaluations and more basket tinkering occur in the months and
years ahead, one hopes the animal spirits won't take over and drive US
interests rates through the roof. Broad Asian currency revaluation now
has its chance to truly pare down our gargantuan trade imbalances.....
....I expect it will prove difficult for the Chinese authorities not toFrom Daniel W Drezner:
allow further revaluations. However if the total appreciation over the
next year or so is limited to 5-10% it will not have marked economic or trade repercussions for China or the US.
....ForFrom The Big Picture:
the U.S., I'm not sure a two pecent revaluation is going to affect
trade one way or the other. The rule of thumb has been that a ten
percent revaluation would lower the trade deficit by one percent, so
this won't have that big of an effect on the trade balance....
....today's actions are the net result of theFrom The Wall Street Journal's Econoblog:
United States consuming far more goods or services than it produces. Because of
that, the Chinese have accumulated nearly a trillion dollars of US Treasuries.
That makes them a de facto player in setting our interest rate policy
and impacting our economy....
....In many dimensions, the move is too small: It isFrom the Dr. John Rutledge Blog:
too small to make a dent on the Chinese trade surplus or on the
U.S.-China bilateral trade balance; also, the move won't appease those
in Congress who want to pass protectionist legislation against China;
finally, in the short run, the move may lead to even more speculative
capital inflows into China from investors who will bet on further
Chinese revaluation. Still, this is a significant change in the
Chinese currency regime, as it is the first step of a much wider
currency move over time in China and in the rest of Asia......
are playing with fire," China's economy is going to slow. You cannot
diddle with a currency without affecting interest rates in both places,
economic growth, prices and wages. What this change is going to do is
raise interest rates, lower U.S. growth, lower China growth and lower
China's prices and wages."
....In thisFrom China Herald:
case, there will be a direct impact on the US housing market. China's
currency announcement today translates directly into higher mortgage
rates for American home owners. And it accelerates the end of the great
American Real Estate Boom by pushing home prices lower.
....OnlyFrom the Gold Advocate:
domestic reasons have triggered off the change in how China’s financial
authorities manage the Renminbi and the change this week is directly
related to the failure to stem China’s break pace economic growth. The
9.5 percent economic growth for the first half of 2005 is a serious
reason for concern. Sustainable growth seems impossible and China’s
destabilization of global markets costs dearly. A fast economic growth
has also another long-term disadvantage. Keeping its citizens happy
with economic growth is only possible as long as growth is possible.
The end of those possibilities comes earlier in sight when that growth
is as high as it is now. In that way slowing down the economy also
makes politically sense.
....ExpectFrom Bill Fleckenstein of Fleckenstein Capital (via the Gold Advocate):
gold and other precious metals to appreciate as a result of China's
announced currency revaluation, and dollar-based financial assets to
come under more pressure.
....The not-so-subtle message here may be that if the U.S. is
unwilling to allow China to convert its excess dollar reserves into
hard assets, then China will do what it needs to reduce its
accumulation of dollars.
that steals a bid from the dollar is not bullish for financial assets,
given that we spew out a couple extra billion dollars daily, via the
trade deficit, that someone needs to buy. However, anything that helps
to steal a bid from the dollar ought to be bullish for gold.
....This move by the Chinese will be mimicked, to some degree, by
the rest of Asia, whose countries have been the ones supporting the
dollar and our Treasurys. Since they will need to buy fewer dollars,
they'll need to buy fewer Treasurys.