The Saga Continues

If this section of IPE were a story, one of the main elements would be China's currency valuation and its affect on international trade. We have mostly been talking about China's currency in relation to US trade and its current account deficit, yet another (more?) important story is China's currency in relation to its Asian neighbors. The Chinese government has worked hard to keep the Yuan tied to the dollar, meaning that the Yuan has been steadily falling in recent months in comparison to other currencies in Asia. As we've discussed in class numerous times, this makes Chinese goods cheaper relative to its neighbors. As the economies in Asia are largely export-based, more expensive goods is obviously bad for their respective economies.

In response, the central banks have been buying up dollars and building up their foreign reserves. The long-term story here is that Asia is viewed by many as the next global financial center, and devaluing a currency to promote exports is not a long-term growth strategy. Furthermore, one wonders if the strategy that "there's no such thing as too much reserves" is accurate or not. Either way, countries like Singapore and South Korea are stuck between the proverbial rock and hard-place, and it seems that they may lose money either way.