Exchange rates poll (5 day poll - ends January 26)

[Gaybutton]

Capital controls restrict peoples ability to move their money, which is in my view an unacceptable limitation on personal freedom. It also restricts trade & people will make efforts to circumvent the controls.

That reminds me of something that happened to me. Years ago when I was still living in the USA, but going to Thailand on a regular basis, my accountant wanted me to bring back a cashier's check from a Thai bank in the equivalent of US $500. I never understood why, but that's not the point of the story.

I brought back a cashier's check from Bangkok Bank. When my accountant was through with it, I deposited it into my American bank account. I asked how long it will take for the check to clear. The bank told me it should take about 12 weeks.

14 weeks later the check still had not cleared. I called my bank to find out why. The gentleman I spoke to said he would look into it and get back to me.

Next day he called me. He told me he has been in this field for many years and has never heard of anything like this. Bangkok Bank was refusing to honor their own cashier's check unless I could provide a reason they would accept as to why I needed to take the money out of Thailand.

I asked him what's going to happen now with the check. He said the only thing they can do is return the check to me. Several days later I received it in the mail. When I returned to Thailand I brought the check to Bangkok Bank, deposited it into my account, and the money was available instantly.

In the meantime, while I was still in the USA my Bangkok Bank debit card worked just fine for withdrawing however much money I wanted from any ATM in the USA.

That whole incident was, and still is, on my "I Don't Get It" list.

[fountainhall]

any country fixing it's exchange rate could be accused of fixing it at an unfair rate to gain trade advantages, which is not free trade.

Thanks. That I get. But up2u posted an article suggesting that China's currency is overvalued and this could be by up to 25%, and that it should be devalued in one go before being floated. That I also get. But if it is in fact overvalued, what benefit is Trump gaining by saying the Chinese are currency manipulators? If the RMB/Yuan was floated tomorrow, surely it would fall - and equally surely isn't that the exact opposite of what Trump wants? And doesn't that also increase the value of China's US$ reserves? I'm sure there's something I'm not getting, but so far I can't see it.

[readerc54]

Trying to figure out the rationale for why Trump says something is, in the end, a fruitless pursuit. The only reliable answer is because it gets him air time. The most recent Frontline presentation shows repeated examples of how he senses the moment to blurt out anything that will keep the cameras rolling. His goal is to always be unpredictable whether it's something entirely new or doubling-down when a more prudent person would back away. He knew the media will buy it and, of course, it does. Trump is, after all, a creature of the media and they don't eat their own because they depend on those ratings that generate ad revenue.

Consider Trump's recent statement supporting waterboarding and enhanced interrogation. It's red meat for his supporters and quickly jumped to the top of breaking news. Although he qualified his statement by saying he'd ultimately leave it up to defense secretary Mattis who has already said publicly that he's opposed to it (making it a non-story), the media loved it.

Steve Bannon this week labeled the media--and not the Democrats--as the opposition party and that jumped to the top of the news queue. In reality, the Trump organization and the media need each other to thrive. It's a true symbiotic relationship where the facts (real, fake or alternative) always take second place to the demands of the news cycle itself.

http://www.pbs.org/wgbh/frontline/film/ ... ite-house/

[Up2u]

FH, "... But if it is in fact overvalued, what benefit is Trump gaining by saying the Chinese are currency manipulators?....", it is simply politics, Trump massaging his political base. This was his defining issue in the last election.

[fountainhall]

So, another case of alternative facts, it seems.

[Jun]

But up2u posted an article suggesting that China's currency is overvalued and this could be by up to 25%, and that it should be devalued in one go before being floated.

I have seen articles suggesting the Chinese currency is overvalued. However, I have never seen an article that offers a good reason to justify WHY it's overvalued. [There are probably such articles, but despite reading the financial press, I have not yet seen one]

I would argue that the US dollar is overvalued and the Chinese RMB is undervalued, since the US runs a persistent long term trade deficit and the Chinese run a persistent long term trade surplus. This is not sustainable.
It may go on for decades, but cannot go on for ever. After all the borrowing and money printing by the US, eventually there should be a loss of confidence in the US dollar or something should happen to restore the competitiveness of US manufacturing. Most likely to be a devaluation of the US dollar, over the long term (short term is a very different matter).

As far as I can see, the markets take a more short term view, which may be driven by worries about the short term outlook for the Chinese economy and other factors such as wealthy Chinese trying to move some money overseas, since they don't trust the government. So if it were allowed to float, in the short term the Chinese currency would probably fall.

Currently, the US dollar probably gains some strength as the world's reserve currency. The dollar will not be the reserve currency for ever, but at present there is nothing to replace it. Actually, there is something wrong with all the major currencies.
USD: Too much debt
CNY: Currency controls & state interference in domestic economy
JPY: Printing more of them at an astonishing rate
EUR: Too many countries with non convergent economies struggling to live with common interest rates. No guarantee it will still exist in 10 years. Very unlikely to be around in 100 years.
GBP: Too much debt

Actually, the UK debt situation is at least as bad as the US. However, the GBP has not been the world's reserve currency for about a century or so & the Brexit vote has been the catalyst for a much needed devaluation.

[Up2u]

"...
I would argue that the US dollar is overvalued and the Chinese RMB is undervalued, since the US runs a persistent long term trade deficit and the Chinese run a persistent long term trade surplus....." Historically, going back many many years, the US has accused Japan, Germany and recently China of currency manipulation. The US huge trade imbalances can be attributed to strong vs weak currencies. The US car and electronics industries were devastated by unfair trade and financial policy. As a student my first Volkswagen cost me $1750 and my first Sony transistor radio $5.

[fountainhall]

I can recall the time when the Reagan administration pushed Japan hard to revalue its currency during the 1980s. In mid-decade the rate stood at around US$1=¥260. By 1990 the ¥ had been revalued to ¥130 and was to rise as high as ¥83 by 1995. At the same time though Reagan pushed for Japan to import more American made cars. Fine, said the Japanese, and up sprang dealerships in the main cities. I remember walking past a Chrysler dealer going to work every day. I never saw anyone inside! The American car bosses had failed to accept that the Japanese drive on the left and had not adapted their cars. They also failed to understand that unlike in the USA most roads in Japan, including in the cities, are extremely narrow. The big American cars made then were never going to sell! Idiotic!

[Jun]

"...
I would argue that the US dollar is overvalued and the Chinese RMB is undervalued, since the US runs a persistent long term trade deficit and the Chinese run a persistent long term trade surplus....." Historically, going back many many years, the US has accused Japan, Germany and recently China of currency manipulation. The US huge trade imbalances can be attributed to strong vs weak currencies. The US car and electronics industries were devastated by unfair trade and financial policy. As a student my first Volkswagen cost me $1750 and my first Sony transistor radio $5.

In the case of the Japanese Yen, a low exchange rate was undoubtedly a factor in their huge balance of trade surplus about 30 years ago. When they got pressured into allowing a fair exchange rate, the trade balance evened out considerably.
I've not seen much evidence of German currency manipulation. From what I remember of the DM days, it just tended to get stronger against other currencies. However, perhaps I'm just not looking back far enough.