The Advantage of Power

When all other countries get into financial/economic difficulties, the IMF goes in to help by telling them to 'put their own house in order'. But for the Americans it is different. When they run out of money or their currency run the risk of being overtaken by others as global base, they go whack/rob others like Iraq. If that still does not work, the IMF goes round the world to blame anyone they can for their problems. What a great country! They print money for nothing, whack others who do not want to use it to keep it artificially high, give some to some cheap Asian economist to work in the IMF, and this idiot says what their paymaster wants.

A few years ago when I told a man in a petrol kiosk that the USD will fall with the advent of the Euro, he told me not to worry as the USD will always 'retain its value' because it is backed by gold. I told him that he is more than 30 years behind time – Nixon dumped Bretton Woods in the early 70s.

I wonder how many other fools there are out there living with false notions like that....

xxx



WASHINGTON, United States (AFP)
The International Monetary Fund has warned China that the cost of maintaining its fixed currency regime was mounting and argued for a widening of the trading band on the yuan by 10 percent to 15 percent to stave off pressures on its giant economy.

"I think the cost of maintaining the exchange rate regime is going to be large and will grow over time -- which is why I think there is an argument for a quick move," IMF's China division chief Eswar Prasad said.

The Chinese yuan, which is fixed to the US dollar, is currently considered grossly undervalued and the United States, Japan, and the European Union have been groaning under the weight of cheap Chinese exports. The IMF has been prodding China for sometime to swiftly adopt a flexible currency regime – like widening the band in which it allows the currency to trade against the dollar -- but Beijing says the time is not ripe yet.

Prasad, answering questions from experts at a conference in Washington on East Asian exchange rate issues, said it was more feasible for China to adopt flexibility in managing the yuan than launching a radical revaluation of the currency.

The yuan, also known as the renminbi and now pegged at 8.27 to the US dollar, is currently anchored in a narrow band to the dollar enforced by the Peoples Bank of China. This range is considered too weak by many financial observers. But Prasad indicated that China had to literally pay the price for not heeding IMF advice to it about a year and half ago to widen the band by some three to five percent. "I think under present circumstances that could be disastrous because the market might see that as clearly inappropriate and just as a first step. But I think the price of having waited this long – the initial move is going to have to be much larger," he said. Now, because of greater pressures to its economy, if China wanted to widen the band, it should do so by, say, 10 to 15 percent, he said.

US President George W. Bush has been talking up the currency issue ahead of the November 2 election, charging that the yuan rate had kept China's exports artificially cheap, undermining US exports and stealing American jobs. Bush telephoned Chinese President Hu Jintao this month to underline his concerns and Hu vowed to "move forward firmly and steadily to a market-based, flexible exchange rate," according to the White House.

China's top finance and central bank officials were invited for the first time to attend this month's meeting of finance chiefs from the Group of Seven industrial powers at the sidelines of the IMF/World Bank annual meeting in Washington. G7 members again pressed for a freer yuan regime but the Chinese officials again offered no timetable, saying they would act "when conditions permit."

A free-floating Chinese yuan, according to some analysts, could boost US exports and thereby help reduce the massive US current account deficit, which has contributed to imbalances in the global economy. Ernest Preeg of US policy research group Manufacturers Alliance said 19 bills expressing concern over "currency manipulation" by China and other East Asian economies were before Congress, warning that they could be integrated into single legislative action.

Some experts at the conference suggested that the yuan be first revalued upwards by 25 percent and then be traded on a wider band. But Prasad said it might not be appropriate. He argued that just a 10 percent to 15 percent widening of the trading band would not lead to excessive market pressure on the currency. "As far as possible, the market will think that once this amount of widening is permitted, that there really is going to be nothing more," he said. "After all, if the Chinese can hold the exchange rate where it is right now when the presumption that it is undervalued by 25 percent or 40 percent or more, they can very easily hold it at 15 percent," he said.