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  • 2019.11.11 Monday
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  • by スポンサードリンク


Catch 22:Donald Trump


 President Donald Trump has been criticizing China for its currency manipulation. However, China is currently interfering with the foreign exchange market not to depreciate the renminbi to fuel exports but to appreciate the renminbi’s value. And, Donald Trump might have to yield to China as the former Obama administration did.   


 China’ s renminbi has been weakening since August 2015 due to the deceleration of the Chinese economy. Since then, U.S. dollar-based insurance in Hong Kong has caught on among Chinese who worry about the stability of the renminbi. Chinese are now buying up real estate in Western countries and Japan, artwork, premium wines, etc., converting Chinese yuan to valuable items.    


 In order to curb the outflow of the renminbi, the Chinese government only allows Chinese citizens to hold 50,000 U.S. dollars per person. Nonetheless, the outflow has not decelerated. Despite China’s foreign exchange intervention, the exchange rate of the renminbi to the U.S. dollar has depreciated by 6.6% during 2016, the largest loss since 1994. And, China’s foreign currency reserves plummeted from 4 trillion dollars in June 2014 to 3 trillion dollars as the end of January this year, a plunge of 1 trillion dollars in a little over 2 and half years.   


 If China stops intervening in the currency exchange markets, the renmnbi will weaken further, which will fuel China’s exports.   


 If China continues to sell U.S. bonds to intervene in the currency exchange market, the prices of American bonds will decrease and interest rates will rise in the U.S. Then, investment money will flood into the U.S. and the U.S. dollar will strengthen, which hinder American exports.   


 President Trump plans large-scale infrastructure investment and tax cuts. In order to implement his policies, the U.S. has to issue a large number of U.S. bonds. Who will buy those bonds?  


 After the Lehman Shock in 2009, the Obama Cabinet issued national bonds to implement a large-scale stimulus package. Then-Treasury Secretary Geitner visited China and asked then-President Hu Jintao to continue to purchase U.S. bonds, ignoring China’s currency manipulation.   


 As of the end of last year, China owned 1.058 trillion dollars of U.S. bonds following Japan at 1.098 trillion dollars. Without Japan and China, the U.S. cannot sustain its finances. In fact, the U.S. was on the verge of default in October 2013. China has been utilizing its economic power as an economic weapon against the U.S.  


 It is well known that Japan depends on the U.S. in terms of defense. On the other hand, the U.S. depends on Japan financially. The Abe Cabinet should consider whether or not it should continue to purchase U.S. bonds.   




  • 2019.11.11 Monday
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  • 15:46
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  • by スポンサードリンク


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