Ben’s Bet

FT has a good piece with Chinese premier Wen Jiabo on the value of the renminbi, and as those concerned about global currencies say, “When Mr. Wen talks, people listen.”– Ho, Ho Ho. Mr. Wen states plainly that calls for appreciating the value of the yuan’s only “purpose is to hold back China’s development.”

Now, we saw Professor Bernanke on the front of Time taking George Washington’s place on the dollar, people think he has a lot of control. Mr. Bernanke’s policies have devalued the dollar and outside of global financial markets, the one great beneficiary are the Chinese. As FT states,

China dropped its formal dollar peg in 2005 and has since allowed the renminbi to trade within a narrow band. But since the middle of last year it has operated a de facto peg. This has meant that the renminbi has depreciated about 9 per cent against the currencies of its main trading partners since early this year, even though the Chinese economy has rebounded quicker than any other major economy.

Phew, “de facto,” I’ll say. Professor Bernanke stated in the book he wrote on the Depression, currency devaluation had helped improve the situation. However, pre-monetarist thought and those who created the IMF considered the early 1930s beggar thy neighbor policies of currency devaluation having added globally to the deflationary environment. The Chinese have an advantage over a lot of manufacturers from this devaluation for sure. Ben’s policies are causing problems in global manufacturing, people are reacting louder. I guess this is when Ben comes out and says as he wrote, what will really help is a coordinated global currencies devaluation, though first he and Mr. Geithner will have to quit claiming they’re for a strong dollar. We’ll see how that goes.

The implications of Mr. Bernanke’s unprecedented money policies are far from done playing out, any sharp waves in a very untethered global currency market would cause massive shifts.