Here is a lesson in currency exchange.
This is from the point of view of Chinese exporters. News reports are always form the point of view of the nation's exporters. There are four different points of view, for example: USA Exporter, USA Importer, China Exporter, China Importer. So say I am the USA importer, what do I see?
Today US$1.00 = RMBY6.2252
Here is another view RMBY1.00 = US$0.1606
This is the exact same event over the same time frame presented as a conversion from one currency to another, and back. See how complicated it gets? Today it is about 6 Yuan to the Dollar, roughly.
At some point in 2008 it was roughly 7 Yuan to the Dollar.
So as an importer from China to USA, I need more dollars today to pay for the same goods as in 2008. So Chinese goods have gotten more expensive. Today a dollar gets me 6 yuan, while on 2008 a dollar got me 7 Yuan. My dollar gets me less today. This is largely due to USA economic policies.
This is not to say Chinese exporters have not lowered their prices to maintain market share, by either taking less or introducing more efficiencies. Specific cases of effect are too numerous to cover here.
In the reverse, as an exporter from China to USA, a Chinese exporter gets more dollars today in pay for the same goods as in 2008. This might seem good for them, but it creates headwinds in selling to USA.
Now the USA exporter to China finds his dollar prices do not buy the Chinese importer as much USA goods. USA goods have gotten more expensive to the Chinese importer. It is unlikely that any USA exporter will make any effort to create efficiencies or otherwise make prices more attractive to Chinese importers. The reason is that what USA sells to China, almost all heavily subsidized goods, and the big businessmen behind the exports rely on the power of government for their markets. This is why in spite of the economic problems are the result of USA economic policies, candidate Romney promised his first act as president would be to declare China a currency manipulator. Funny that, coming from the worlds #1 currency manipulator.
News reports are pretty much useless on this topic because the point of view is extremely narrow and in any given case the circumstances may mean nothing at all.
I once heard Treasury Sec Volcker say exchange rates do not matter, it is the economic health of the trading partners. Exactly.
We at the small business level manage currency risk by trading in velocity (frequency) not volume. Otherwise, any news on currency moves is pointless.
Feel free to forward this by email to three of your friends.
|
This is from the point of view of Chinese exporters. News reports are always form the point of view of the nation's exporters. There are four different points of view, for example: USA Exporter, USA Importer, China Exporter, China Importer. So say I am the USA importer, what do I see?
Today US$1.00 = RMBY6.2252
Here is another view RMBY1.00 = US$0.1606
This is the exact same event over the same time frame presented as a conversion from one currency to another, and back. See how complicated it gets? Today it is about 6 Yuan to the Dollar, roughly.
At some point in 2008 it was roughly 7 Yuan to the Dollar.
So as an importer from China to USA, I need more dollars today to pay for the same goods as in 2008. So Chinese goods have gotten more expensive. Today a dollar gets me 6 yuan, while on 2008 a dollar got me 7 Yuan. My dollar gets me less today. This is largely due to USA economic policies.
This is not to say Chinese exporters have not lowered their prices to maintain market share, by either taking less or introducing more efficiencies. Specific cases of effect are too numerous to cover here.
In the reverse, as an exporter from China to USA, a Chinese exporter gets more dollars today in pay for the same goods as in 2008. This might seem good for them, but it creates headwinds in selling to USA.
Now the USA exporter to China finds his dollar prices do not buy the Chinese importer as much USA goods. USA goods have gotten more expensive to the Chinese importer. It is unlikely that any USA exporter will make any effort to create efficiencies or otherwise make prices more attractive to Chinese importers. The reason is that what USA sells to China, almost all heavily subsidized goods, and the big businessmen behind the exports rely on the power of government for their markets. This is why in spite of the economic problems are the result of USA economic policies, candidate Romney promised his first act as president would be to declare China a currency manipulator. Funny that, coming from the worlds #1 currency manipulator.
News reports are pretty much useless on this topic because the point of view is extremely narrow and in any given case the circumstances may mean nothing at all.
I once heard Treasury Sec Volcker say exchange rates do not matter, it is the economic health of the trading partners. Exactly.
We at the small business level manage currency risk by trading in velocity (frequency) not volume. Otherwise, any news on currency moves is pointless.
Feel free to forward this by email to three of your friends.
0 comments:
Post a Comment