President-Elect Trump Hints At Bretton Woods III

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Editor's note: This article was originally published on December 5, 2016, by Menzie Chinn here.

Via Twitter, yesterday afternoon:

(From CNBC)

China is currently expending reserves to support the value of the yuan:

Source: Setser, "China's October Reserve Sales, And A New Reserves Puzzle,"Follow the Money, Nov 17, 2016.

This suggests at least three (or many more) possible interpretations of what the President-elect has in mind: (1) China needs to keep its currency fixed against the USD for all time; (2) China cannot devalue, but revaluation is ok; (3) we need new international monetary regime where exchange rates are irrevocably fixed against the USD.

I think we've been at (3) before, or something close. On (1), I don't think we'd always like the outcome. (2) is my take on the Trump framework, in which case it's becoming clearer (if it wasn't clear before) that if there is anything that characterizes the Trump Wirtschaftlichen weltanschauung, it's mercantilism with a heavy dose of government intervention into the workings of private industry for the purposes of benefiting specific sectors within the economy.

Oh, and by the way, I doubt the yuan is very much undervalued, either by the price criterion, or a simpler balance of payments/basic balance approach.[1]

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