How Far Will China’s Currency Rise Against The Dollar?
The RMB has broken through the 7.5 ratio to the dollar. Not surprising given how far the dollar has fallen relative to other currencies around the world – the question remains, how much will the RMB rise in total?
What do you think?
The article below, translated from People’s Net shows that the RMB has already risen quite a bit (it’s actually closer to 10% since lifting the 8.23RMB:$1 fixed currency rate, the 8.22% is based on the starting exchange rate after a more flexible policy was implemented):
The People’s Bank of China authorized China’s foreign currency trade center to announce that the exchange rate today fell to 7.4938å…ƒ:$1, breaking the 7.5 barrier. This means that the RMB has already risen by 8.22% since instituting the new currency exchange policy.
On Tuesday, US Treasury Secretary Henry Paulson indicated that the rise of the RMB has been too slow. After a meeting about US-China relations, Paulson stated that the RMB is undervalued on a trade weighted basis, and even more undervalued based on China’s manufacturing capabilities. But when asked how far the RMB should rise against the dollar, Paulson indicated he didn’t believe that giving a specific percentage would be of any use.
Not stating a goal for the RMB to appreciate by is a strange thing to do when you are calling for the RMB to rise. Perhaps Paulson is just thinking the more the merrier. After all, there are some advantages to a falling dollar.
Why A Rising RMB is Good For The US
The farther the RMB rises, the more stuff we can sell to China, and the total RMB value of our debt to China will fall. It’s a good strategy but for one question: When China has been burned such that they don’t want to lend us any more money, where will the US turn?
What are your thoughts? Shouldn’t the picture above be one of the US dollar burning itself instead?