It appears that the Chinese government is paving the way for a re-evaluation of the Yuan. Read Chinese back yuan amid talk of revaluation – BusinessNews – www.theage.com.au to learn more.
If the Yuan appreciates against the dollar, what will be the major upshot of this? I see two primary impacts:
Cheap Chinese exports will no longer be so cheap. Of course, the Yuan will have to appreciate significantly for this to mean much, but this is possibly the first step in the journey.
Cheap Chinese currency will no longer finance our debts. The Chinese (and Japanese) have been purchasing US Government bonds to keep their currencies up against the dollar. This kept their currencies depressed against the dollar (good for them) and allowed us to finance debt at a relatively cheap price (good for us?). When the buyers aren’t there for your goods, you have to increase the profits for them to nibble. Our borrowing will cost more.
Not sure if increased bond yields will drive more American savings, or will cause us to finally reign in spending. Perhaps we, as Americans, will shrug our shoulders and keep borrowing. I sure hope not.
[Via PrestoPundit]
