RMB Redux

What depreciation? A bit against the dollar, but we shouldn’t be so parochial as to think we’re China’s only trading partner! Over the past two years the dollar has appreciated against the currencies of many of China’s other major trading partners (Europe, Korea, Japan, Brazil….) so the net effect is NO depreciation. Data through January 2016.ChineseForex

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Prof of Economics, Wms School of Commerce, Washington and Lee University, Lexington VA
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2 Responses to RMB Redux

  1. zhangr18 says:

    I know that lots of countries have either taken fiscal or monetary expansion that results in depreciation in their currency. Japan has been pushing down it’s interest rate, with a nominal interest rate close to zero and real interest being negative, to stimulate investment, resulting in a depreciation of Japanese yen. CPOB has been lowering banks’ reserve ratio, increase money supply, which also risks the stability of Yuan, or RMB, again. While all other countries’ currency are depreciating, the effect of depreciating currency should be counteracted. However, what would the story be when U.S, at this moment, still has its currency appreciating? How would that impact American economy?

    • the prof says:

      Well, officials in the Bank of Japan were in for a surprise: they cut interest rates, and the value of the yen appreciated against the US dollar by about 10%!!!

      Likewise the RMB has appreciated against the US$ since the start of the year.

      Lots of the financial press made the same presumption, that low rates this year in Europe and Japan and China opposite an initial rate increase in the US would lead to a sharp appreciation of the dollar. Instead the dollar is weaker against all three!! Are market participants too busy to read newspapers….??

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