Monday, March 22, 2010

China, U.S. Currency War Escalating

China shot off its own response to the aggressive comments by some American politicians and business leaders over the alleged idea that they are manipulating their currency to their own advantage.

With political pressure in the U.S. mounting, this could turn into an unpleasant and unprofitable dispute for both countries, with the U.S. having the most to lose.

Some business groups claim the yuan is undervalued as high as 40 percent, although that's largely conjecture and not able to be proved.

Even so, the Chinese currency is almost surely undervalued to some degree, and could rise some if allowed to by the Chinese authorities.

But the problem is the way America is dealing with the situation, where populist-leaning lawmakers from America are making a lot of noise in order to get noticed by their constituents regarding looking like they're doing something about the problem.

With China holding so much U.S. debt and being in the much stronger position from that point of view, it doesn't make much sense to do the public saber-rattling which can sometimes lead to stupid decisions because of not being willing to back down.

China asserts its global trade surplus will probably drop to a trade deficit in March, after plunging by 50 percent in January and February.

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