The renminbi as a reserve currency

[deereman64]

Up until now we have tried to solve our problem leaving the current economic order in place. Certainly, the immediate cause of the problem was the credit crunch in the US, or rather a buyer's strike on dollar denominated debt that was not US treasury. This points to the wider issue that we have a serious imbalance in the world's economy; China is both the supplier of goods and of capital and the rest of the world is the taker. We need to address this . The solution is to make the Chinese currency, the renminbi, the reserve currency.
a) The renminbi becomes fully convertible.
b) The Chinese sell their usd dollar holdings for renminbi only.
c) The Chinese pay for commodities only in renminbi.
d) The Chinese only take renminbi for their exports.
The effect of these actions together would be to revalue the renminbi and to place it as the world's reserve currency .This would increase internal demand in China whilst depressing external demand for Chinese goods
The Chinese government has been fearful to do that because of the supposed correlation between increased improving living standards and the the demand for democracy.The truth is that Chinese expectations for improving standards already exists and if their government does not meet these demands they will be translated into social unrest.
What will be the impact on the west? In short, short term pain but over the longer term a rebalancing of savings to consumption ratios plus the rebuilding of the supply side of their economies.

 

[JB4310]

I think this is to deep and complex an issue to discuss on a tractor forum. Yo may have a good point but I don't think we're qualified to decide such a radical idea

JMO,

JB.

 

[deereman64]

i thought about that but I have always found the forum to be an excellent place to get real feedback that's both incisive and gritty

 

[turbo36]

i thought about that but I have always found the forum to be an excellent place to get real feedback that's both incisive and gritty

Warren Buffet suggested a different tack back in 2003 to address this but as usual we shut the barn door after the horse runs out. Anyway this is a good read.

America's Growing Trade Deficit Is Selling The Nation Out From Under Us. Here's A Way To Fix The Problem--And We Need To Do It Now. - November 10, 2003

 

[dmccarty]

Buffet's article was interesting for several reasons.
- He admits he is usually wrong on such matters.
- That gloom and doomers are usually wrong.
- The worth of US stocks was 12 Trillion dollars in 2006.

Congress passed 700 billion in spending just a few months ago and wants to spend another 900+ billion for a grand total of 1.6 Trillion dollars for "stimulus". Compare 1.6 vs 12 Trillion. And I don't think Congress is done stimulating with my dollars.

There are some, like Milton Friedman, who argue that the balance of trade is not an accurate measure. And then there are others that says it does not matter at all. Not sure I can agree with that idea.

So I don't know. I am intrigue that Friedman does not think the numbers are accurate.

Later,
Dan

 

[turbo36]

Buffet's article was interesting for several reasons.
- He admits he is usually wrong on such matters.
- That gloom and doomers are usually wrong.
- The worth of US stocks was 12 Trillion dollars in 2006.

Congress passed 700 billion in spending just a few months ago and wants to spend another 900+ billion for a grand total of 1.6 Trillion dollars for "stimulus". Compare 1.6 vs 12 Trillion. And I don't think Congress is done stimulating with my dollars.

There are some, like Milton Friedman, who argue that the balance of trade is not an accurate measure. And then there are others that says it does not matter at all. Not sure I can agree with that idea.

So I don't know. I am intrigue that Friedman does not think the numbers are accurate.

Later,
Dan

I'm very familiar with Friedman's book "Free To Chose" but I take issue with his assumption that markets will always correct perhaps this is true but in who's lifetime?

If you dig into the so called bank bailout you will see that it is a loan with a high interest rate and stock warrants. It isn't a bailout unless the banks fail. I have a number of friends in the banking industry and the cost of participating in this program is very expensive to the banks, so expensive that many bank are now refusing the funds.

 

[Mickey_Fx]

The last time I was in China, there were two different kinds of currency. There is one the government uses for international trade and the other is the RMB which is the currency used internally by the citizenry. The RMB is not an international recognized/traded currency.

Maybe I'm missing something in the original post.

 

[dmccarty]

I'm very familiar with Friedman's book "Free To Chose" but I take issue with his assumption that markets will always correct perhaps this is true but in who's lifetime?

But in this case Milton is talking about balance of trade not the market correcting. And I do think the markets correct the definition of market correcting is moving up or down in value. I certainly will see more booms and bust cycles in my lifetime.

The WSJ had a US Map a week or so back showing the loss of real estate value in various cities. My area has had little correction because we just were not in a bubble. Places like FL took a 20-25% loss. That was a market correction since the housing down there was over priced. They had a bubble. Then the hurricanes and the huge problem of getting house insurance has to effect the housing market. Market booms and busts i.e. corrections in FL have been happening off an on since at least the early part of the 1900s. People used to buy land in FL without even looking at what they were buying. Lots of it was swamp.

Later,
Dan

 

[deereman64]

The last time I was in China, there were two different kinds of currency. There is one the government uses for international trade and the other is the RMB which is the currency used internally by the citizenry. The RMB is not an international recognized/traded currency.

Maybe I'm missing something in the original post.

thanks ,hence the need to make RMB fully convertible