sample.com - yahoo currency converter

IN THE RIGHTFUL campaign to protect what remains of the U.S. textile industry, some have demanded that China increase the value of their currency and stop the practice of pegging the value of the Chinese yuan to the U.S. dollar. Currently the yuan's value is pegged at roughly 8.30 yuan for every U.S. dollar. This makes Chinese goods extremely competitive on the world market. Other countries say the Chinese yuan is undervalued by as much as 40% relative to its real market value.

The United States, along with other developed countries, are calling on China to float their currency based upon real market values, which would protect industries like U.S. textiles from Chinese imports. A re-valued yuan would make Chinese goods more expensive relative to the dollar, resulting in a more competitive edge for the United States.

But what would become of the Chinese economy if the yuan is floated? More and more economists are asking that same question and some suggest we should proceed with caution when it comes to China's currency .

In a recent column from economics editor Larry Kudlow, he suggested that any meaningful adjustment to the yuan would be a revaluation of at least 25%. This would require a significant tightening of Chinese monetary policy which, in turn, he says would cause a big slowdown in Chinese economic growth.

He added that a slower Chinese economy would take a percentage point or two off U.S. economic growth, especially in areas like commodities, cyclical industries, tech, transportation, shipping and trucking. In other words, a slower Chinese economy would hit the U.S. cotton grower and other industry segments in a negative way.

A slower economy in China would result in less textile output and less demand for U.S. cotton in the country. Also, with the currency no longer pegged to the dollar, China would have great buying power when it comes to U.S. cotton.

The last Asian economic collapse in the 1990s was a result of several countries "de-linking" their currency from the U.S. dollar.

Kudlow adds, "Treasury man John Snow insists on floating rates worldwide, but he forgets that emerging country currencies don't float - they sink. Aren't we yet persuaded that nations cannot devalue their way to prosperity? Or that currency stability is better than currency chaos... A floating yuan might rise on the short run, but it could crash in the medium term as foreign investors withdraw their capital flows for fear of instability."

As economics editor William P. Kucewicz notes, "While a stronger yuan would make Chinese exports (more expensive) it would make imports cheaper. And there's the rub. Less expensive imports of raw materials, industrial equipment, manufacturing technology and the like would eventually translate into lower export prices (and higher quality goods) as input costs declined and labor productivity rose. Thus, any gain from a shift in the terms of trade would be transitory."

While it is important to support the remaining domestic textile industry, we must accept the fact China has integrated into the global economy and all countries have a vested interest in the success of China's economy. However, reinning in the growth of China makes sense in that if left unfettered, worldwide inflation is a real threat. Is floating the yuan the best way to rein in China's growth or are there other ways to approach this that would have less potential to throw the country's economic stability into chaos? It is a question worth asking, as a stable China is key to our ability to produce and sell roughly 18-20 million bales of cotton each year.

China and the other Asian countries now represent the largest buyer of U.S. cotton, so what happens in that part of the world will directly impact us here at home. This also requires that we produce the quality of cotton they demand and continue to provide world-class HVI quality data, timely delivery and contract sanctity. Playing honest and by the rules is what has distinguished the U.S. cotton industry in the world. China is lacking in this area and needs to improve if they expect to play on the world market. China following trade rules is arguably more important than their floating of the yuan.

frgiles@meistermedia.com

sample.com - yahoo currency converter

Menu