Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
... have to decide is whether the value of resources available from the US or the value of a discounted RMB¥ in selling in the US market.

Clearly if the Chinese stop propping up the dollar, the dollar drops dramatically against the Yen and the Euro, so the risk in other export markets is not substantial. That is, one cannot equate a decline of the US$ against the RMB¥ as a decline of all currencies against the RMB¥ when that same decline would remove the functional support of the US$ exchange rate.

reduces Chinese purchasing power abroad which has negative welfare effects for anyone in China who wants to buy anything made somewhere other than America or China

... is clearly a complete red herring - the question for retention of political power is providing employment until the pace of labor force expansion starts slowing. For a wide range of imports, the government does not risk losing political power as a result of "welfare effects for anyone who wants to buy anything made somewhere other than America or China" - those positional good imports that are not important for maintaining production are worth whatever their price is in RMB¥ - if the exchange rate was higher, more expensive imports in foreign currency would be required to maintain the same positional status.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Nov 6th, 2009 at 11:04:33 PM EST
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