Floating the Yuan: Be Careful What You Wish For

Filed in archive Yuan Renminbi on February 9, 2009

Mark Sunshine had an interesting piece at Seeking alpha last week. He says that if the Chinese let the yuan float freely, there's a good chance it would fall in value. And that would make Chinese goods cheaper.

The value of the yuan became more of an issue a few weeks ago with the confirmation to Tim Geithner as the Secretary of the Treasury.

Sunshine rightly points out that Chinese goods are cheap for a lot of reasons - not just because of currency manipulation. Then he looks at a London Times story that suggests that

A prerequisite for a strong currency is a strong government that is able to maintain social order. The Sunday London Times article, Violent unrest rocks China as crisis hits, describes labor unrest, riots, state censorship, violence and class warfare The unmistakable conclusion of the London Times article is that the fabric of Chinese society is starting to come apart.

Sunshine's conclusion:

Tim Geithner had better hope that he doesn't get what he wants, and that the Chinese don't make the Yuan freely convertible, or its crashing value may be an unwelcome surprise to the U.S. economy.

Photo courtesy of iStockphoto, Image# 2322459