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a seismic economic shift? « Previous | |Next »
July 26, 2005

Last week the Chinese revalued their currency and linked it to a basket of currencies. The revaluation is modest (a mere 2%) and a long way from the 27.5% revaluation that some politicians in the US Congress are demanding. Nor is a 2% revaluation very much for a country that is likely to run a current account surplus of 6 or 8% of GDP. It won't have a huge impact on trade flows between China and Europe and China and the US.

Is it enough to deflect political pressure from the US protectionists, who posed a threat to geo-political stability? No doubt they see the yuan as being undervalued by 10-25%. Is it enough to deflect the European protectionists from putting restrictions on Chinese imports?

Does the revaluing mean that the Chinese will shift away from holding their foreign reserves in US Treasury bonds and notes?

All this emphasis on China indicates that the US is not the only economic (global trading hub) in the world. China second trading hub is forming in Asia, and is centred around China. Does Beijing's move from a $US peg to alignment with a basket of currencies signify a step toward an Asian currency network controlled by Asia, and not by the central banks of the US and Europe?

If so, then that is a seismic shift. The US is excluded from the East Asia Summit.

What does that mean for Australia? Can Canberra afford to be Washington's advocate in Beijing, especially when the Pentagon has gone paranoid about China threatening the US empire in Asia?

| Posted by Gary Sauer-Thompson at 12:17 PM | | Comments (0)