Well, the two Chinese currencies (onshore yuan and offshore yuan) are trading for the same amount again . . . I guess that is good news. It means there is more clarity/stability in the markets.
Only 12 years ago there were even bigger differences between China’s two currencies.
Just 20 years ago, when most people were still on dial-up modems and the tech age was in its infancy, it was completely illegal to export Chinese currency.
In those days, China had nothing even remotely kinda sorta like free trade, (biggest non tariff barriers of any major economy in the AD era.)
Today China’s nontariff barriers are still super extreme Having two currencies is just the tip of the iceberg.
What bothers me is not that.
Random people on the Internet don’t now that China has two currencies? Who cares?
But the whole point of China doing that (having two currencies) is that they are trying to move, at a slow measured pace out of a 1700s type mercantilist mindset and
eventually they want to be as open to free trade as say . . . the 1800s or even the 1900s.
.
.
.
What –>IS<– of some concern is when financial media (Bloomberg, CNBC, etc.) and the economics pundits they interview act as though they don’t know these things, like when they act as if “China has small tariffs so so China has free trade. Donald Trump is the bad guy. He is the one who is opposed to free trade.”
Those people are either thoroughly incompetent,
or they are so full of political spin we might as well count them as liars.
Do yourself a favor. Don’t listen to them. Better yet, listen to them and know that they are either incompetent or they are untruthful to the core.
Until ~2004 (only 20years ago) china had a pre dark age version of free trade.
It was illegal to export chinese currency So you could not, in any normal sense of the word buy foreign investment or foreign goods or foreign services. That was mercantilism on a level the British colonialists never even dreamed of
However
when the US bought Chinese stuff there were US dollars floating around their economy.
when Germany bought stuff there were German Marks floating around their economy
when Japan bought heir stuff . . .
It was terribly impractical to have that many currencies,
So they set up a quota system.
If a US businessman bought a container load of Chia pets, he would pay in dollars and the chinese manufacturer would get specisl certificates (today called "the offshore yuan). -----> THOSE could be exported, and therefore China could import stuff, but
only up to the amount that it had previously exported,
— and—
to make that happen, to import something, a business in china first had to go around and gather up a bunch of those certificates. (The added cost of doing so meant the onshore yuan and offshore yuan never traded 1-to-1.)
Today, since roughly 2012 (only a dozen years ago)
China still operates on a hybrid system.
“Gathering up” the offshore yuan has been systematized,
by banks and exchanges. So now the two currencies frequently trade at 1-to-1.
But the system is still in effect.
It still is a quota system, (Chinese cannot import anything without first gathering together currency that China originally received by exporting stuff)
It is still miles and miles away from anything a rational person would call “free trade.”
Taking action against China does not end free trade.
Taking action against China does not violate free trade.
Taking action against China is just saying “The emperor has no clothes.”
(And a lot of people are embarrassed. They don’t want to admit they have been perpetuating the lie all along.)
When I lived in China in the late 1980s, it was . . . well it was like all of pre-2004 I think.
I’d exchange my dollars and they’d give me “offshore yuan.”
They were cool because I could use them to buy imported goods.
(To prevent imports, it was illegal to sell imported goods to anyone who had that stinky old regular currency.)
Of course I wasn’t there to by imported goods.
I didn’t need imported goods
So I’d walk up and down in a tourist area and sooner or later some sleezy-looking fella would as me if I wanted to “change money.”
In those days we got 1.2 local currency for every 1 “offshore” currency. And that was just the first part of the price people had to pay to gather together enough to buy an imported thing, send their kid to an US university etc…
They also had foreign stores
(They called them “friendship stores.”)
They were places where, among other things, expats living in Cian could buy a tv a refrigerator or a bicycle without waiting through the quota system.
The point is China is still miles and miles and miles away from anything resembling “free trade,” or 'fair trade" or “a level playing field.”
A punitive tariff policy is 100% called for.
A very good idea.
now. . . I would have gone about it differently, but the goal is 100% admirable. Long overdue.
So if a company wants to import . … I dunno, oil it must first gather up a whole bunch of “offshore yuan.”
In the old days that came with a very substantial added cost.
Today the added cost is at/near zero but the “two currencies” is still in place. It still serves as a quota, and accumulating a pile of “overseas yuan” still sends off warning lights to the cent gov can approve or disapprove of your intended use.
Just one of many many many
non tariff barriers China uses.
They should never have been let in the WTO or any other organization based on free trade. (But they were very poor at the time so people rationalized “it doesn’t matter.”)
