Currency

Upon returning to Switzerland, I can’t help but notice a plethora of complaints about the ‘inaccurate’ valuation of the Chinese currency. The Renminbi is, the internet claims, undervalued. According to fuzzy memories from an economics class that I took at Georgia Tech in an earlier era (Precambrian), this is a good situation for the American (and European) consumer. In short: Chinese imports are cheap.

Aside: Based on experience in Shenzhen, I can confirm that prices are low.

The Chinese economy is driven by exports. A cheap Renminbi, not only increases exports, it has allowed China to amass a vast reserve of US dollars.

“Hmm,” I think. “Is it smart to hold so very many dollars?”

I recall a few years ago that Japan had a similar policy – an export-driven economy that amassed a huge trade surplus in US dollars. There was worry that the Japanese economy would leave the US in the dust. There was consternation when a Japanese organization bought Rockefeller Center. There was enormous pressure on Japan to ‘correctly value’ the ¥en. There was a huge bubble in the Japanese real estate market: property in Tokyo was worth more than all of the United States.

Eventually, Japan gave into to pressure and revalued the currency. The economy stagnated, the bubble burst and the country has been in the economic doldrums for the last 20 years.

Hmm.. perhaps we see why there is resistance to revalutation from China. And, by the way, is it possible that a bubble is building up in China?

The photo has nothing to do with the posting; I’m just following through on an earlier promise.