Another Viewpoint about currencies
laozhu  Updated: 2004-02-13 11:44

What are currencies anyway? They were backed by gold in the past until a major state backed out of this deal, and now only by the confidence of the currency holders and the credibility of the issuing states. I think economist call them Fiat Money.

Who should determine the value of the currencies anyway; arguing economists, free currency trading markets or the unscrupulous currency traders as demonstrated in the raid on the Sterling Pound and more recently the Asian currencies. What are the bases for determining the values? Only vague qualitative arguments with no quantitative substantiation. More likely, the ability of the issuing nation in defending its currency exchange rate, that is the health of its economy.

Not too long ago, pressures was for the Renminbi to devalue after the Bath, Rupee, Ringgit, Won etc went down. I remember no tangible reasons, but that it should devalue, otherwise it would not be able to compete with the other Asian nations whose currencies had gone down. Suddenly it is the other way round because PRC is able to produce affordable goods for the American people. As a layman I am confused on the logic and rationale put forward.

Who is manipulating or trying to manipulate the exchange rate of the Renminbi: the rumor mongers, the G7 or PRC?

What is wrong with deflation? What is wrong if someone can produce goods competitively? Either you produce similar more competitive goods or go do something you are better at? I love deflation. I love affordable goods. I am sure the Americans love these affordable goods and their businessmen like the profits they make. PRC cannot be manipulating its currency and subsidizing its products to let Americans enjoy such goods and the foreign businessmen enjoy those profits. PRC will bleed to death if that is the case. PRC will be doing its people a disservice.

Now with the Renminbi tied to the US Dollar and both weakened with respect to the Euro Dollar as a result of the weak Dollar, European consumers should rejoice. Chinese goods are even cheaper in Europe. Americans should be also be happy because European goods would be more expensive to PRC, and there should be a shift towards American products.

If Europe is unhappy because their exports to PRC are so important, devalue the Euro Dollar or find ways to make its exports cheaper to PRC. Don't always point fingers only in one direction. Tell US to take steps to strengthen its dollar if you could.

Even with the current regime, it is apparent PRC is earning enough to progress itself and the meager wages are bringing changes to families. Don't rob these people an opportunity for a better life by making them non-competitive through an exchange rate change.

The above content represents the view of the author only.

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