Some Comments on Paul Krugman's view about RMB

Are aircraft carriers that China is going to build a threat to USA? Hardly so! Are the new weapons that China has invented recent years a threat to USA? Unlikely! So what is it so that USA sees China as a threat?  The comments made by Paul Krugman about RMB lately revealed all secrets: It is the RMB, stupid.

USA became an economic force during WWI . The US economy was booming for the next decade after the war. The long economic boom eventually created an excess supply of goods. As a result, nations across the world devalued their currencies in order to clear their excess supplies, as in a game of prisoners』 dilemma: It is always the best for a nation to devaluate its currency more in order to sell its goods no matter what the other may do.  Eventually, this leaded to a trade war. The great depression in the 1930s followed. The US economy did not fully recover from the great depression until the start of WWII in 1938. USA became an economic superpower by selling weapons and other commodities during WWII. By the end of war in 1945, with German defeat again, the USA almost became the only economic superpower in the world, replacing UK.

The Gold Exchange Standard from 1925 to 1931 was very important for the dollar and the US economy. Under the standard, the US and England could hold only gold reserves. Others could hold both gold and dollars or pounds. In 1931, England could no long tie its pounds with the gold. That was the time the dollars finally replaced pounds. One may define 1931 as the birth year of a new economic superpower and the death of an old one.      

After WWII the Bretton Woods System was implemented in 1946 (US economic superpower was now 15 years old, still pretty young but toward mature) reinforced the unique power of the dollars: each nation tied up its currency with the gold or dollar in a fixed rate system. One ounce of gold was fixed at price of $35. Under this system, US could obtain gold by printing paper money, without any limits. No other country could have such power. Consequently, the system collapsed in 1971 because of sharp depreciation of the US dollars: Is there any business better than this? Papers exchange for gold! What can you expect?

This introduction about dollars, though brief, tells us why Paul Krugman and President Obama worried so much about RMB, which may one day be an alternative to dollars. Of course, there are so many others who also beg for such a day to come as late as possible.  It also tells us why China won』t be at the same stage as the USA no matter how much its GDP is. G2 or other discussions about China is just trying to fool China, with some evil intentions.












克魯格曼：有生之年看不到人民幣國際化
　鳳凰衛視5月11日《金石財經》

曾瀞漪：我們看到在人民幣的匯價方面，大家都非常的關注。去年諾貝爾經濟學獎得主克魯格曼最近在北京，他是今天出席北京，應中國民生銀行的邀請參加了一個活動，他認為人民幣匯率是有調升的必要。他在接受鳳凰網財經頻道還有《金石財經》節目共同提問的時候，談到了對人民幣國際化的看法，他說在他的有生之年，也許都看不到人民幣
的真正國際化。

克魯格曼（諾貝爾經濟學獎得主）：我認為人民幣在我有生之年，可能難成為國際貨幣，因為人民幣現在不能自由兌換，但今後有可能可以。世界需要一種貨幣能被第三國自由使用，要成為國際貨幣，需要有非常成熟的債券市場，歐元現在都無法真正與美元相提並論，因為歐元區的債券市場較破碎。人民幣有可能成為國際貨幣，但應該不會在我有生之年。

enlightening comments. paper for gold, greenback equals to gold. fantastic.

Thanks for nice comments. Some corrections: `no long` should have been `no longer`. `was implemented` should have been `implemented`. Sorry for the careless.

Papers exchanged for gold under the Bretton Woods System. It did not work any more since gold standard was over in the 70s. Now Papers exchanged for goods made in China. Gold or goods, not much difference. One can bet what may happen in the end to the Chinese foreign reserves: USA will print more dollars, with no costs. So the current economic crisis should be no surprise (well, I admitted I did not predict it earlier than others).  The same story happened to Japan in the 80s-90s. US just repeated what it was good at: Borrow $100 from China to buy a hundred dollars worth of goods made in China using Chinese resources and manpower, a chair in 1990 say. Then USA is willing to pay China $150 in 2009 that  can only purchase $50 worth of goods at 1990 prices, about half of the original chair. How to make sure China can only buy half a chair then? Simple: print more papers. Such a business should be good. Why not do it again and again!!!