Tuesday, June 22, 2010

Yuan Floats Hope?

So the Chinese government is going to finally allow the Yuan to float (somewhat, but not fully, mechanism yet to be determined) rather than being pegged to the U.S. dollar.  This raises two questions for me.  First, does this mean that China will gradually slow down (and eventually stop) buying American debt?  Second, is this the first step towards a Chinese push to make the Yuan the world's reserve currency?  If either is the case, there are rude shocks ahead for the western democracies.  Of one thing we can be sure: China only does what is good for China.  China could care less about what's good for the global financial system, the environment, or anything else.  China is an increasingly militaristic nation, with eight aircraft carriers under construction at last count and copies of whole Asian cities built to scale in the desert for war games.  China, remember, is a totalitarian state; they rigidly control their own populace through censorship and the secret police.  Economic belligerence is certainly consistent with their past.  And then there's their support for rogue regimes like North Korea and Iran.  Allowing the Yuan to float (somewhat, but not fully, mechanism yet to be determined) is supposedly a sign that China has confidence in the global recovery.  Allowing it to rise 0.05% yesterday is confidence in the global recovery?  I think I might be more confident in the recovery than that, and I think it's fantasy!