Monday, June 21, 2010
A few Thoughts on the RMB
China indeed came through with the promised revaluation of the RMB over the weekend, effectively reverting to the "pre-crisis" pegging criteria for the currency established in 2005.
By the close of business in Asia on Monday, the Renminbi had advanced almost .5%, to 6.7976 per dollar.
This looks like a blip on the radar, but represents the only real move in the RMB over the past two years, as the PRC government prevented appreciation of the currency in an effort to drive exports.
Check out John Hudson's post on the Atlantic Wire blog for a round up of punditry following China's big move. Lots of comments about posturing ahead of the G-20 summit and a few prognostications of the evolution of China's economy that address a gumbo of currency, labor and social issues.
As someone no longer bound to rationalize PRC economic policy as part of my job, I am more interested in the larger issues of State Capitalism in play for China. Ian Bremmer addressed the threats for China's government last year in Foreign Affairs:
I think that state capitalism is ultimately unsustainable in China. A government that micromanages economic life can take enormous credit when it helps generate three decades of nine percent annual growth. But when things begin to slow and the pace of economic expansion can no longer match the pace of rising public expectations, the leadership will have to shoulder a lot of the blame. When the gap between rich and poor reaches a tipping point, when go-go growth produces a true ecological disaster, whatever the turning point, the party will have to take the lion's share of responsibility. But these chickens won't be coming home to roost in the next couple of years. This is probably a much longer-term management challenge for the leadership -- though one much larger than any it has yet faced.