Monday, 11 October 2010

Currency war - for China a smoke and mirrors job

The following brief citation which I came across at the naked capitalism website, expresses the unusual power which China has in the world of FX as alluded to here.

Furthermore it also helps to explain why, for the US to condone Japanese currency management (or at least not to criticize it), the Chinese government can afford to take the high ground and a tough stance in the negotiation, instigated by the US Treasury secretary, about increased voting rights for BRIC nations in the IMF as discussed here

"Japanese intervention...means that Chinese authorities managed to get Japan to acquire their Dollar reserves for them. Instead of buying Dollars, China buys Yen, which in turn induce Japan to buy Dollars. This maintains the artificial capital flows to the US while allowing China to escape accusations of being a “currency manipulator.”

Congratulations to the writer of the above paragraph as it captures elegantly the essence of the back and forth on the "currency war" issue.

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