Comments on Michael Stutchbury “Productivity retreat won't ease squeeze”, 19/10/2010, http://www.theaustralian.com.au/business/opinion/productivity-retreat-wont-ease-squeeze/story-e6frg9p6-1225940390023
Our farmers may or may necessarily be hurt by the strong dollars.
It depends on the world price for food.
Isn't it true that the Russian fires and its restriction on wheat exports caused the price to go up? How much a bushel?
High dollar may be actually not that bad after all.
Most of our exports are primary goods and their prices have been high.
The share of outputs from those sectors squeezed may not be that large.
Showing posts with label currency. Show all posts
Showing posts with label currency. Show all posts
2010-06-19
A solution to some of current problems in euro zone
Comments on Bill Evans “Europe's dark clouds”, 19/06/2010, http://www.businessspectator.com.au/bs.nsf/Article/WEEKEND-ECONOMIST-Europes-dark-clouds-pd20100618-6J9XJ?OpenDocument&src=sph
While having own currency for troubled members could be a solution, there is no need for a new currency or currencies for any euro members.
The euro zone could initiate intra-euro trade measures that have effective currency effects.
Such measures include allowing a troubled country to have a tariff on imports from other euro members and use the revenue to subsidize its exports.
It will be equivalent to own currency depreciation in a common currency area with no own currency.
Those trade measures, while inconsistent with WTO rules, should be only applied within the euro zone and should be acceptable to euro members as a better alternative to re-creating own currencies for some current euro members.
While having own currency for troubled members could be a solution, there is no need for a new currency or currencies for any euro members.
The euro zone could initiate intra-euro trade measures that have effective currency effects.
Such measures include allowing a troubled country to have a tariff on imports from other euro members and use the revenue to subsidize its exports.
It will be equivalent to own currency depreciation in a common currency area with no own currency.
Those trade measures, while inconsistent with WTO rules, should be only applied within the euro zone and should be acceptable to euro members as a better alternative to re-creating own currencies for some current euro members.
2010-04-12
Complex issues in Chinese currency and exchange rates
Second comments on Yiping Huang “Misperceptions about the RMB and Chinese exchange rate policy”, 11/04/2010, http://www.eastasiaforum.org/2010/04/11/misperceptions-about-the-rmb-and-chinese-exchange-rate-policy/
There are a number of points relevant but missing in Yiping's analysis.
Firstly, the impact on employment of appreciation, especially on mobile workers from rural areas and associated social stability must be carefully analysed and considered. This, of course is what the authority has to consider when large scale closures of manufacturing plants as a consequence of currency appreciation are concerned.
It is not just an issue static versus dynamic adjustment issue, although it has some relevance. Any dynamic adjustment has to be realistic as opposed economists’ wishes for a sudden technical or management improvement. For economists, it is so easy to change the ratio of labour versus capital and adopt new technologies. But in reality, the story can be quite different. Managers and entrepreneurs are not as lazy as some economists think.
Secondly, the issue of China's official reserves and assets denominated in $US and its potential very damaging consequences in terms of social stability, given that now many Chinese are aware the effects of a yuan appreciation. It is obvious to so many Chinese, especially the so called elite what an appreciation means in terms of the values of those assets. It is, however, very difficult to judge the how the public will react to authority sanctioned appreciation and the losses in state assets values.
Thirdly, even China adopted a flexible exchange rate, there is no guarantee that the US or some others continue to pressure China. For example, they could and would argue that it is not flexible enough as long as they wish to use it as stick to achieve whatever purpose they may have. At some stage, a country has to stand up to powerful countries for its own interests, otherwise international bullies will repeat endlessly with no real prospect to be checked.
Fourthly, the argument of country can only achieve two out three goals of "monetary policy independence, the free flow of capital and exchange rate stability" is likely to be problematic, if bank credits can be controlled. It is more than likely that in China’s case, all three can be achieved, rather than the conventional view.
Fifthly, although Yiping used some of the key insights (the unholy trinity) from the Mundell-Fleming model of international trade, an important implication of the model is overlooked, that is, the differential growth in domestic income as compared to external income. That should mean a deterioration of the current account balance. The experience of the past months indicates that has been the case now and further and possibly increasing trade deficits are likely to occur.
It would be prudent for both China and the US and other players to wait and assess the development in recent months before making any unwise moves. The Chinese economy is at a critical stage of structural transformation and in the short term it is highly likely to experience current account deficits until the transformation is completed.
Yes, China may move back to pegging to a basket of currencies and allows reasonable flexibility, but it does not necessarily mean currency appreciation measured by trade weighting.
Now it leads to ma last point on the missing elements in Yiping’s article, that is, the issue of China’s official holdings of $US denominated assets, that so many analysts have either ignored or think difficult to deal with.
It should be abundantly clear that it is reasonable for the Chinese authority to negotiate with the US authority on the issue of Chinese holdings of the US Treasury bonds. In fact it would be negligent of duty if the Chinese authority does not deal with this issue. Some move on that front is necessary for the Chinese authority to be able to tell its domestic audience on any currency moves.
It is unreasonable and indeed irrational for the US to ask for China to appreciate its currency and make a direct loss by holding the US government bonds. That will make the Chinese authority look so stupid.
A reasonable compromise is to use a mixed currency denomination, e.g. denominated in a basket of currencies.
There are a number of points relevant but missing in Yiping's analysis.
Firstly, the impact on employment of appreciation, especially on mobile workers from rural areas and associated social stability must be carefully analysed and considered. This, of course is what the authority has to consider when large scale closures of manufacturing plants as a consequence of currency appreciation are concerned.
It is not just an issue static versus dynamic adjustment issue, although it has some relevance. Any dynamic adjustment has to be realistic as opposed economists’ wishes for a sudden technical or management improvement. For economists, it is so easy to change the ratio of labour versus capital and adopt new technologies. But in reality, the story can be quite different. Managers and entrepreneurs are not as lazy as some economists think.
Secondly, the issue of China's official reserves and assets denominated in $US and its potential very damaging consequences in terms of social stability, given that now many Chinese are aware the effects of a yuan appreciation. It is obvious to so many Chinese, especially the so called elite what an appreciation means in terms of the values of those assets. It is, however, very difficult to judge the how the public will react to authority sanctioned appreciation and the losses in state assets values.
Thirdly, even China adopted a flexible exchange rate, there is no guarantee that the US or some others continue to pressure China. For example, they could and would argue that it is not flexible enough as long as they wish to use it as stick to achieve whatever purpose they may have. At some stage, a country has to stand up to powerful countries for its own interests, otherwise international bullies will repeat endlessly with no real prospect to be checked.
Fourthly, the argument of country can only achieve two out three goals of "monetary policy independence, the free flow of capital and exchange rate stability" is likely to be problematic, if bank credits can be controlled. It is more than likely that in China’s case, all three can be achieved, rather than the conventional view.
Fifthly, although Yiping used some of the key insights (the unholy trinity) from the Mundell-Fleming model of international trade, an important implication of the model is overlooked, that is, the differential growth in domestic income as compared to external income. That should mean a deterioration of the current account balance. The experience of the past months indicates that has been the case now and further and possibly increasing trade deficits are likely to occur.
It would be prudent for both China and the US and other players to wait and assess the development in recent months before making any unwise moves. The Chinese economy is at a critical stage of structural transformation and in the short term it is highly likely to experience current account deficits until the transformation is completed.
Yes, China may move back to pegging to a basket of currencies and allows reasonable flexibility, but it does not necessarily mean currency appreciation measured by trade weighting.
Now it leads to ma last point on the missing elements in Yiping’s article, that is, the issue of China’s official holdings of $US denominated assets, that so many analysts have either ignored or think difficult to deal with.
It should be abundantly clear that it is reasonable for the Chinese authority to negotiate with the US authority on the issue of Chinese holdings of the US Treasury bonds. In fact it would be negligent of duty if the Chinese authority does not deal with this issue. Some move on that front is necessary for the Chinese authority to be able to tell its domestic audience on any currency moves.
It is unreasonable and indeed irrational for the US to ask for China to appreciate its currency and make a direct loss by holding the US government bonds. That will make the Chinese authority look so stupid.
A reasonable compromise is to use a mixed currency denomination, e.g. denominated in a basket of currencies.
2010-03-16
Congress is bluffing!
Comments on Karen Maley “Congress calls China's bluff”, 16/03/2010, http://www.businessspectator.com.au/bs.nsf/Article/Congress-calls-Chinas-bluff-pd20100316-3KRDF?OpenDocument&src=sph
Krugman is no saint and is certainly hypocritical!
He thinks he got the Nobel Prize and what he says is truth. Far from it!
Did China force the US sub-prime mortgage practice? Wasn't that practice the fundamental cause of the GFC?
Which country caused the world great damage through the export of its own GFC to cause the world GFC? The US or China?
Who has long had very low savings rate and high budget deficits? Did any other countries have the power to force the US to do that in the past, say few decades?
The US has been used to power politics or imperialism, either military or economic. It congress thinks it has the power over the world and force any other countries according to its will and wayward.
But unfortunately for them, those days seem to be over and they have to come to terms with their own vulnerabilities. The sooner they realise it, the better it will be for them. Otherwise, they will be more deeply disappointed, not with others, but themselves.
Krugman is no saint and is certainly hypocritical!
He thinks he got the Nobel Prize and what he says is truth. Far from it!
Did China force the US sub-prime mortgage practice? Wasn't that practice the fundamental cause of the GFC?
Which country caused the world great damage through the export of its own GFC to cause the world GFC? The US or China?
Who has long had very low savings rate and high budget deficits? Did any other countries have the power to force the US to do that in the past, say few decades?
The US has been used to power politics or imperialism, either military or economic. It congress thinks it has the power over the world and force any other countries according to its will and wayward.
But unfortunately for them, those days seem to be over and they have to come to terms with their own vulnerabilities. The sooner they realise it, the better it will be for them. Otherwise, they will be more deeply disappointed, not with others, but themselves.
2009-10-27
No need for Aussies to panic and learn to live with prosperity
Comments on Alan Kohler “Australian dollar disaster”, 27/10/2009, http://www.businessspectator.com.au/bs.nsf/Article/Australian-dollar-disaster-pd20091027-X7R9U?OpenDocument&src=sph
Alan, there is no need to be so alarming about the rise of the Aussie dollar.
While the so called Dutch disease may present a problem, it can also present some opportunities to Australia.
One is that it will force manufacturing and construction to upgrade their structure to a higher level, through enhanced productivity and better entrepreneurship and management.
A second opportunity is that it may afford the RBA to be a little more relaxed on inflation and hence on its interest rate. A more relaxed inflation target will make the interest rate differential between Australia’s and the international ones smaller and reduce capital inflow for portfolio capitals. It also benefits Australians with low mortgage rates.
The third one is that Australian’s can use the higher purchasing power of the Australian dollar to either enhance their lifestyle, or invest overseas to reap more reward.
So, I am not as pessimistic as some of the commentators or some policy advisors are. One should learn to live with prosperity.
At the same time, I am appalled by the panic some people have shown regarding the rise of the Aussie dollar.
Alan, there is no need to be so alarming about the rise of the Aussie dollar.
While the so called Dutch disease may present a problem, it can also present some opportunities to Australia.
One is that it will force manufacturing and construction to upgrade their structure to a higher level, through enhanced productivity and better entrepreneurship and management.
A second opportunity is that it may afford the RBA to be a little more relaxed on inflation and hence on its interest rate. A more relaxed inflation target will make the interest rate differential between Australia’s and the international ones smaller and reduce capital inflow for portfolio capitals. It also benefits Australians with low mortgage rates.
The third one is that Australian’s can use the higher purchasing power of the Australian dollar to either enhance their lifestyle, or invest overseas to reap more reward.
So, I am not as pessimistic as some of the commentators or some policy advisors are. One should learn to live with prosperity.
At the same time, I am appalled by the panic some people have shown regarding the rise of the Aussie dollar.
2009-10-17
A strong $A is good for Australian economy
Comments on Michael Stutchbury “Dollar’s push to parity”, 17/10/2009, http://blogs.theaustralian.news.com.au/currentaccount/index.php/theaustralian/comments/dollars_push_to_parity/
Michael, I like a muscular Assie dollar!
While it has a positive effect to insulate the economy from overheating (of course through a negative effect on exporting and a positive cheaper imports), it also has an effect to upgrade the Australian economic structure to a higher and internationally more competitive level, as well as for the corresponding skills of labour force.
That is a long term issue and important for the future.
Forced structural changes by a strong dollar is a good thing.
That will bypass a lot of political interferences by incompetent politicians and bureaucrats.
Michael, I like a muscular Assie dollar!
While it has a positive effect to insulate the economy from overheating (of course through a negative effect on exporting and a positive cheaper imports), it also has an effect to upgrade the Australian economic structure to a higher and internationally more competitive level, as well as for the corresponding skills of labour force.
That is a long term issue and important for the future.
Forced structural changes by a strong dollar is a good thing.
That will bypass a lot of political interferences by incompetent politicians and bureaucrats.
2009-07-24
Funny things with the Chinese currency
This is a short comment (in Chinese) on h8631986j "人民币升值出现拐点？" 23/07/2009, http://www.pinggu.name/space-535507-do-blog-id-16588.html
That article is funny in many ways.
本人不熟悉人民币基点，但感到300点够大的了。如果是真正市场的话，那可能得以千点计算，够吓人的。
自7月16日，至昨日，不过一星期，怎么会是一个多月？
如一个多月才贬300基点，还不如许多货币一天内的变幅，有何可惊讶的？
加上所提到的单线走势，说明没什么市场，或不是市场。
既不是真正市场，有何走向和拐点可谈, 不可笑?
That article is funny in many ways.
本人不熟悉人民币基点，但感到300点够大的了。如果是真正市场的话，那可能得以千点计算，够吓人的。
自7月16日，至昨日，不过一星期，怎么会是一个多月？
如一个多月才贬300基点，还不如许多货币一天内的变幅，有何可惊讶的？
加上所提到的单线走势，说明没什么市场，或不是市场。
既不是真正市场，有何走向和拐点可谈, 不可笑?
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