Friday, September 11, 2009

China Falls in with the Wrong Gang

The latest figures from People’s Bank of China show that their M2 money supply measure rose over the last six months by a record annualized rate of 28.53 percent.

This is very rapid money growth, likely to keep the stock market strong, but has serious inflationary consequences. The Chinese currency will never become a leading international reserve currency with this kind of money printing.

Clearly, China has fallen in with the wrong gang, and following in the bad footsteps of the leader of that gang, the money printing United States.

4 comments:

  1. Wenzel,

    Is China forced to inflate to maintain the peg to the dollar via balance of trade?

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  2. I'm not sure "forced" is the right word, but propping up the dollar is one of the reasons they print.

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  3. If they want to promote their currency as an international means of payment (which they evidently do), wouldn't they need to have simply more of it to fill the place presently held by the dollar? Say if they buy $1B worth of commodities, and now it's not USD 1B, but CNY 7B, that CNY sum has to be taken somewhere, and the dollar equivalent has to return home... Ouch!
    Does this make sense?

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  4. It's not really having money "out there", if that were the case, the Zimbabwe dollar would have been the world's currency.

    In order for a currency it needs to be respected as a non-depreciating currency, and it would have a major advantage if it was a large country producing lots of products, which would make the currency atractive to many different merchants.

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