Monday, November 25, 2013

Dean Bakler — China's Central Bank Announces Job Creation Program for the United States

That may be a bit of an overstatement, but the comments from Yi Gang, a deputy governor at China's central bank, deserved much more attention than they received. According to Bloomberg, YI announced that the bank would no longer accumulate reserves since it does not believe it to be in China's interest. The implication is that China's currency will rise in value against the dollar and other major currencies....
China's Central Bank Announces Job Creation Program for the United States
Dean Baker

The value of China's currency is set by the peg it chooses. Unless China also decides to relax the peg, the move will not necessarily affect the relative value of Chinese currency.

The decision "not to continue accumulating reserves" means that China will reduce its purchase of foreign government securities like US Treasuries. This would mean either reducing its surplus trade balance by increasing imports relative to exports or increasing foreign direct investment, which could raise employment in the country in which China was investing its trade surplus. The other way that China could reduce its external sector is by domestic rebalancing and shifting output to domestic use — Chinese workers working for themselves instead of foreigners.

So this move could but not necessarily benefit employment in countries that presently run a trade deficit with China.


mike norman said...

And now we can officially credit our own leaders for turning us into the next China because they basically beat China over the head to go this route.

So expect wages to remain stagnant, the dollar to stay weak and prices for formerly "cheap" China goods to rise. The bottom line is, in real terms, we lost.

Matt Franko said...

They could just let the Chinese firms/corporations retain the USD balances in their US accounts at the US Depository Institutions rather than change out the firms for Yuan and take the balances on as 'Official Reserves'

and then business as usual in their zealous pursuit of USD savings.... and easier to embezzle USDs that way...