Thursday, November 19, 2009

Why A Stronger Yuan Would be in China's Best Interest

There is a very good reason why China should make the yuan stronger. Most commentators have it completely wrong on why. In a comment on his blog, Stefan Karlsson separates the wheat from the chaff and explains the real reason China should drop its foolish policy of propping up the dollar. Karlsson writes:

...I think China should make the yuan stronger. Not however, for the reasons most pundits argue but rather because China needs to rein in the obvious inflationary excesses of their current boom, and currency appreciation would be one way of achieving that.

And furthermore, yuan appreciation would reduce the political pressure for barriers against Chinese imports.
The Chinese propping up of the dollar is causing the Chinese to print a huge amount of new yuan, which is fueling a bubble economy in China that will inevitably result in a crash.

BTW Karlsson continues his analysis of the Chinese currency situation by taking on the defective analysis of Paul Krugman.

Karlsson writes:
Case in point is Paul Krugman's latest column. Almost all of his columns and blog posts contain errors, and I don't have the time or will to try to correct them all. But the latest one was unusually misleading even for being Krugman.
So if you haven't seen a good bloodying of Krugman this week, click here.

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