Friday, July 22, 2005

Big Yuan - Much Ado About Nothing

China's decision to float the yuan is really a yawn. It does nothing to solve the longer-term issue of China having a price advantage currency-wise. Probably gets John Snow some brownie-points with some lobbyists though.

OK - So what? Well, purveyors of big, expensive goods (Catepillar, etc.) catch a small break and mass importers like Wal-Mart may take a hit to their margins as I doubt they will raise prices to off-set the foreign exchange flucuations.

Also, it will be interesting to see how, if at all, this affects the bond markets as China is one of the U.S.'s largest buyers of Treasuries (e.g., Creditor). We've seen before how slight disruptions in the Asia currency markets can really spook the dollar traders as well as the bond guys - which means higher interest rates in the forms of mortgage and other reail bank borrowing rates. - The Two-Percent Solution


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