Too Many USD Holders / Peg Revisited
Charles Chong said...
i don't fully agree on your statement. Mind you that China is a big adopter of US treasury bills, trillions of them. With China holding so much of US treasury bill, they will do their best to protect the value of USD, not to mention that HKD is in fact pegged to USD. China, being one of the wealthiest nation in Asia currently, will not allow their wealth to be swept away over night.Comments: charles, we cannot hide, i mean the USA cannot hide behind the skirt that many countries are holding Treasuries hence they won't let the USD collapse... yes, politically, China and some of the Middle East nations have that objective as well... even China complained strongly on the GSE to paulson recently, basically hinting that they might STOP buying GSE debts if they do not go and rescue Fannie & Freddie... I ask you this, are the central banks in China, Japan, UK and US strong enough to stop a slide in USD ...think, I don't think they can, they may temporarily halt the slide with sentiment change n intervention... u cannot stop it if enough ppl think the same line ... if they can, u think the USD would have lose 30% in a few days back in 1987 ... if they can, u think the British pound would have lost 20% in a few days in the 90s... and thats with a lot of help from all major central banks
we should not go back to the peg because a peg gives a false sense of security ... you have limited room to move with monetary policy and yr fiscal policy are restricted... look at HK, they have a silly negative interest rate now, while their economy is tied to China, their monetary policy mirrors that of USA by virtue of the peg
most importantly a peg kinda stops a country and its industries from moving up the value chain in industrial efficiency and product competitiveness
you also want the country to benefit from a stronger currency for better purchasing power when the country does well
the peg would favour all exports again... and mostly very basic exports on the lower food and production chain, why debase our industries again ... i think the cpo planters and electronics exporters have had a gleeful run when the peg was instituted... looking at it another way, the rest of the country suffered but the these exporters were laughing, we had to contend with diminishing purchasing power and much of our loss went to support the bottomline of these exporters... thats why i think cpo buggers should be the first in line for a windfall tax...
p/s photo: Song Min Ji