4 comments on “Timmy Elsewhere

  1. I don’t really understand your argument. It’s certainly the case that the euro and pound seem to have taken more strain as so many others don’t have free-floating exchange rates. But this doesn’t mean, for example, that the Chinese yuan is becoming overvalued against the dollar. Why would it?

    Tim adds: That’s the point. The yuan is pegged to the dollar. So one of twothings needs to happen. Either the dollar must become undervalued against other currencies, so as to be properly valued against a basket of currencies. Or, the dollar must be undervalued so as to get the Chinese to break the peg to the dollar, as it becomes too expensive for them to hold that peg.

  2. As a side point its worth remembering that the yuan has appreciated quite a bit against the dollar recently, it’s not a fixed peg.

    But I still don’t really get the argument, for surely although the dollar might have to be (and surely is) undervalued against the free-floaters to compensate, it doesn’t mean that it will be undervalued against the yuan, and so when you say:

    “will be to enforce a period of undervaluation of it. Not really what those riggers really wanted now, is it?”

    I don’t see why, as the ‘riggers’ are concerned about the valuation of the yuan with the dollar, not the dollar/euro or dollar/sterlin.

    Tim adds: It depends upon whether you think that the US will allow the $ to fall further than it otherwise would have in order to get China to break the peg.

  3. Ok, I get you now. You’re suggesting that the US might deliberately debauch its currency (is this what you mean by “allow”?) in order to reduce it so much that the Chinese stop wanting to hold dollar-denominated bonds, and as such abandon their peg.

    Evidently this would not be popular with a country trying to fix its currency to the dollar, but I still can’t see why it is a consequence of that policy or why it is affected by the greater adjustment that has been required in the euro/dollar rate .

    Tim adds: The consequences of somone trying to get you to break your peg are teh cosnequences of your having a peg in hte first place, surely? As to the second, I’m saying that they’re two separate things, but that they might operate at the same time.

  4. Thanks for the link Tim. As I see it the US is actively engaged in a policy to smoke out the peggers so to speak.

    This time it does not want a trade war; inflating away their debt, or at least threatening too seriously will do nicely.

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