Six Yuan to the Dollar: Would That Be Nice?

Filed in archive Yuan Renminbi on November 3, 2007

I read a blog by Richard Brubaker, Founder and Managing Director of China Strategic Development Partners. Rich's company is based in Shanghai, and in a recent blog he talked about the falling Chinese currency, the yuan renminbi.

Rich had some interesting thoughts and I decided I'd point you to them. I agree whole-heartedly with his conclusions that a.) the relationship of China with Western countries like America is often oversimplified in the press and b.) the conclusions we draw about our economic ties with China are often not thought out very well.




Rich gives the example of China's role in buying T-bills that finance U.S. debt; he discusses what a 20% swing in the exchange rate would do to the value of those financial instruments to China and to the process of financing U.S. debt. His conclusion? A weaker Chinese currency would make it more expensive to finance America's debt and probably result in higher interest rates at a time when the Federal Reserve is talking about lowering interest rates to stimulate the economy here. Is he right? You decide.

I do know this from my time living overseas and paying for life with the currency of other countries: big, quick changes in the exchange rate can be traumatic and have unexpected, unintended consequences. Personally, I'm not interested in seeing the economy of China (or the U.S.) disrupted by rapid change in the exchange rate...