Re: yuan dollar
On Aug 14, 2007, at 12:33 PM, Rakesh Bhandari wrote:
Yet profit from contractors may well be mostly repatriated.
MNCs may need yuan to pay contractors, but they don’t accumulate them
as a result.
So it’s not clear to me that an appreciated yuan would necessarily be a blow to US corporate profitability.
It would raise costs in an environment where wages and other costs
are already rising. Chinese inflation is brisk and getting brisker.
It wouldn’t be a body blow, of course, but it would encourage
sourcing elsewhere.
On the contrary, yuan reserves abroad would now be worth more in dollars.
What yuan reserves? The currency isn’t freely convertible. I suspect
those “trapped” balances are pretty insignificant.
All this assumes that Paulson is not talking smack. I don’t think an appreciated yuan would save small American home-based business or declining industries. So if Paulson is serious and is not working on behalf of declining or small business, then the question is in whose interest an appreciated yuan would be. Not most Americans as consumers or mortgage holders obviously.
Like I said, I doubt Paulson is serious, except to the extent that he
wants to defuse pressures from Congress.
Doug