This morning, as I type this, the USDCNY exchange rate is 7.0445. Bloomberg sends out a daily newsletter called ‘Bloomberg Opinion Today’. The remarkable convergence of the views stated therein tells me that reading all of them is a waste of time. For everything that happens, Donald Trump is to be blamed. Period. There are no shades of grey nor nuances. Whether Trump is being shrewd or smart or miscalculating or bumbling from one step to another or that he throws his rivals off-balance, these can be debated ad nauseam. We will not know until a good deal of time has passed. But, to provide no scope for alternative points of view speaks poorly of the platform.
America has labelled China a currency manipulator. Treasury department makes the call and it leads to some punitive actions. It is one of those unilateral measures that America takes, in many areas. Back in the early-2000s and even after 2008, Fed monetary policy stance could have been termed currency manipulation. In any case, China technically does not meet the criteria America has set out for currency manipulation and yet it was tagged. But, the punitive actions that have to follow have no sting because China does not have any US government contracts nor does it receive development funding. See this well-written news-story in Bloomberg.
George Magnus has a piece on it in Bloomberg. It says a lot but says nothing much that is new. The path of yuan from hereon will determine global currency arrangements. Possible. Methinks that the elections next year, the Federal Reserve policies and a possible bitter fight between an incumbent President fighting for re-election and the central bank in America will play a big role in the global confidence on the US dollar.
But, unfortunately for others and fortunately for America, there are many other factors that would play a big role in influencing the trajectory of the continued global role of the US dollar. All those factors underpin dollar’s strength because they undermine the claims of other currencies and countries to dethrone the US dollar.
For example, sample this comment from Magnus’ article:
A major Chinese investment bank recently suggested the industrial sector has lost about 5 million jobs in the last year, almost half of which are attributable to the trade war. [Link]
Vladimir Putin who is widely hated by the mainstream English media has suddenly become quotable for them because Russia is coming good on its threat to diversify out of US dollar. Mildly interesting news but nothing more, for now.
Trump’s fights with the Federal Reserve on American monetary policy stance are more critical, as far as I am concerned, to the path and fate of the US dollar.
John Authers wrote, after the Federal Reserve Board Open Market Committee Meeting last week in which they cut the Federal Funds rate by 25 basis points, that Trump escalates the stakes in the trade war with China to force the hand of the Federal Reserve. I find the logic weird.
A far more reasonable proposition is that he wants monetary policy to help cushion the shock coming from his long-standing and long-running trade battle with China. He is anxious and he knows that market sentiment would sour as he escalates the fight with China. He wants the Federal Reserve on his side to cushion the impact on market sentiment.
Be that as it may, he is risking a big setback to global comfort with and confidence on the US dollar by haranguing the Chairperson of the Federal Reserve. Fed policy is already a slave to stock market gyrations. Trump’s tweets and angry comments are compounding the blows to the Fed’s already-battered credibility. That is the big threat to the US dollar. Not the path of China’s yuan.
If anything, China’s currency war games are a double-edged sword.