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China Is Ready to Depreciate Dollar

China Is Ready to Depreciate Dollar
Authorities of China declared that they would use their currency reserves consisted in 1,3 billion dollars for strengthening of their negotiating position with the USA. Easier speaking, the Chinese threatened to bring down dollar having splashed out on the currency markets huge monetary weight if there would be strong pressure on them. The Chinese press has already compared such variant of succession of events with application of the nuclear weapon, Lenta.ru informs.


Long time the Chinese pretended that they didn't notice pressure of America which urgently demanded increase of a rate of yuan to dollar. Though two years ago they refused from rigid regulation of a rate, but since then the Chinese currency price rise made only 9 percent. In 2006 deficiency of the balance of payments of the USA in relation to China grew up to 232,5 billion dollars. The general proficiency of the balance of payments of China in the past year exceeded 177,5 billion dollars, while deficiency of trading balance of the USA reached 758,5 billion dollars.


China will have to get rid of dollars in case the American currency will start to become cheaper strongly. In this case it will become simply unprofitable to hold reserves in bonds of Exchequer of the USA. Thus it turns out, that if the USA will continue to insist on strengthening of a rate of yuan in relation to dollar which without that is on enough low mark to historical measures, they should be ready that the Chinese will depreciate the American currency.


Except for depreciation of dollar which can occur if China will decide to get rid of such volume of reserves, the economy can collide with one more process. The matter is that from 1,3 trillion dollars of the Chinese reserves 900 billion are enclosed in exchequer bonds of the USA. Sale of bonds will lead to growth of interest rates. It, in its turn can strike on the American mortgage market which now is experiencing crisis.


For estimation of "fair cost" of the currency economists make indexes, comparing the cost of the certain market basket in different countries of the world, correcting this cost at par purchasing capacity. For example, magazine "The Economist" recently has published index Bigmac where the role of a consumer's basket is carried out by sandwich from snackbar McDonalds. The Chinese currency appeared to be the cheapest in the world - it is underestimated for 58 percent. For comparison, the Russian rouble is underestimated for 41 percent, meanwhile Euro - overestimated for 22 percent. Analytics of Bank of America and Swiss bank UBS are sure that the speed of strengthening of rouble in the second half of 2007 will double. It's connected with the fact that the Russian currency, according to them, is underestimated and it negatively influences inflation processes in Russia.


China wants to support low rate of national currency because it gives essential advantages to internal manufacturers: the Chinese goods turn out to be more competitive in home and especially external market. Companies receive export earnings in dollars, while costs on production are in yuans. On the other hand, for the American commodity producers such state of things means that they become noncompetitive in those branches where thye have to come across to the Chinese companies.


- In Russia fast strengthening of rouble which is not balanced by corresponding measures of protectionist character, will promote fastening of the raw status of domestic economy with all following consequences, Ilya Konstantinov considers. - One only have to hope that heads of the Russian state will manage to take adequate measures, not having admitted uncontrollable rise of the Russian currency.


In the first half of the year 2007 according to Roscomstat import of the goods to Russia has grown on 39,4% in comparison to the same period of the last year, while export on 9.8%. Meanwhile in the first half of the year 2006 corresponding sums made 22.7% on import and 31.1 on export.

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