Just as American Exports Are Set to Explode
By JC Collins
When we hear that the Chinese renminbi has depreciated against the US dollar we automatically think that the RMB is weakening everywhere. After all, the USD is the global benchmark on currency valuation. But we need to consider that the renminbi’s valuation is also based on a basket of trade weighted currencies. (See post China Just Ended the Dollar Peg…for the most part) Under this exchange regime the RMB has remained stable, even though Chinese monetary authorities have lowered the daily fixed rate against the dollar.
Over the last few days the dollar has been depreciating, which has caught many by surprise. Most POM readers will understand that this depreciation of the dollar has been expected, and in fact, has been a strategy of the both the Federal Reserve and the US Treasury for many years now.