And even during this supposedly ‘good’ time for China, it is stuck in a conundrum.
China wants to be a superpower and it knows all superpowers have been anchor currencies. So China wants the yuan as one of the world’s anchor currencies.
But China cannot continue to keep the value of its currency artificially low if it hopes to become the world’s dominant economic power:
Years ago, Hu and the Politburo attended secret lectures in which Chinese professors explained the history of the rise and fall of major powers. During these sessions, the Chinese leaders realized that no modern country has ever become a superpower without a reserve currency.
The United States superseded the British Empire after World War II, when the dollar replaced the British pound as the dominant currency in the global financial system. This explains why Beijing has pursued the internationalization of the yuan since the outbreak of the global financial crisis, which the Chinese believe has irrevocably harmed their American rival.
The very next paragraph explains why so many financial experts who continually spout that China has become freer over the past decade are completely wrong:
China has a lot on its plate. Today the renminbi — the official name in China for the “people’s money,” which is adorned with a portrait of Mao — cannot even be freely exchanged into another currency. To keep the prices of its exports artificially low, the country also essentially links the exchange rate of its currency to the dollar. Until now, Beijing has used a complicated system of foreign currency controls to effectively shield the renminbi from global capital flows.
In order to have a reserve currency, China would have to give up all of this. It would have to gradually appreciate its currency, perhaps even allowing it to float freely, so that the exchange rate could be based on the real value of the currency and the strength of China’s economy. This would make the country’s exports substantially more expensive and would drastically curb growth.
If money cannot be freely exchanged, then there is no freedom. Quite simply, without ‘free’ money there is no freedom.
The very next paragraph sums up the whole story:
Nevertheless, hardly a week goes by in which China does not launch new pilot projects to “internationalize” the yuan in the long term.
When an organization is really ready to change, they just do it. They don’t keep trying to fake it week in and week out.
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