Monday, May 23, 2005

The RMB Bickering - An Economic or Political Issue? or Both?

For the past many a month, one of the 'hottest' topics in the field of international finance has been the value of the Chinese currency; the Ren Min Bi. It is currently pegged to the dollar at 1$/8.28RMB.

Politicians in the United States claim the appreciation of the Ren Min Bi would help the US trade deficit and grant China's neighbors with more investment. China claims the US is motivated by political and not economic reasons for advocating the raising of China's currency regime. The US is finding it challenging to argue for the contrary.

The Economist seems to support the idea of moving away from the pegged currency, but by means of a step-by-step mechanism, with the reliance of a currency basket as the first step away from the peg to the US dollar.

At the end of the day everyone knows that the US is solely to blame for its very poorly managed fiscal policies (with the highest national debt in the history of the world). Is China just being a scapegoat used to distract everyone else from the reality behind the Uncle's Sam's financial mess - or is all this an economic issue? Or both?

These are just a few brief remarks to spark a debate on the issue. Your additions or clarifications are welcome. Please share your thoughts.

1 comment:

Berham Ercevitz said...

Whether or not trade is free is dependent on Washington DC. For we all know it is the Republican Cronies who decides when tariffing steel is in the nature of free trade and when adding quotas is free trade, but another country doing any tariffs is considered against the spirit of free trade.

Considering how political economics has come (watch Neil Cavuto's show, latest one I saw had a title: Filibusters and Stocks) thanks to Bush, I'm surprised that the Federal Reserve board hasn't started championing tax cuts.

My point? Albeit a bit sarcastic, Uncle Sam is responsible for Uncle Sam's finances unless uncle Sam gets robbed or hoodwinked by Hu. Though, I am against currency pegs, I think Uncle Sam should find it having no place to comment unless they remove all quotas on Chinese made goods in their country.

Now here is an issue that will put Limbaugh, Chris Matthews, Bill O'Reilly, Bill Maher, and Sean Hannity on the same page: They will defend America's economic hypocrisy.