Earlier This Week I looked At The Potential Global Economic Impact That A Currency War Could Have
In "
Currency war could spell global economic disaster," the potential effect of countries keeping currencies weak in order to
boost exports and
make imports less attractive was discussed. In an article from Seeking Alpha Friday titled "Fed Takes Aim At The Chinese Yuan..." the concern over the
Chinese government deliberately keeping the
yuan well below where it should be valued is discussed in great detail, as well as the potential for an all-out
currency war with all of the negative implications attached to it.
I recommend the read at this
link, but for those looking for a summary from the article, here it is:
"...After holding the yuan steady against the US-dollar through the financial crisis, Beijing signaled on July 19th, that it would begin to allow for the yuan to drift higher, but at a gradual pace. Since then, the yuan has gained about +2.2%, - far short of what US lawmakers want. US Treasury chief Timothy Geithner told Congress on Sept 16th, “the pace of appreciation has been too slow and the extent of the yuan’s appreciation too limited. We are examining the important question of what mix of tools, those available to the United States and multilateral approaches, might help encourage the Chinese authorities to move more quickly,” he warned. IMF economists estimate the yuan is 5-27% undervalued.
As the US-economy continues to stagnate, lifting the all inclusive U-6 jobless rate to 17.1% of the workforce, the Obama administration and Congress are starting to wage an increasingly hostile war against China, demanding that Beijing allow the yuan to rise significantly, and at a faster rate. The US House of Representatives passed a bill on Sept 29th, with huge support of 348-79, that treats China’s exchange rate as an unfair subsidy, and allows US companies to request a countervailing tariff to offset China’s price advantage. Such legislation, if passed by the Senate, and signed by the President could ignite a full fledged protectionist trade war..."
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