China’s economy has slowed but it has not stopped. “Investors, long enamored with the yuan, have increasingly soured on the Chinese currency and are boosting their bests that it will decline against the dollar in coming months,” the Wall Street Journal’s Daniel Inman has written. He noted that “a slowing Chinese economy and a decision by the central bank to loosen its tight control over the currency have driven this year’s decline. Many investors who had been betting that the yuan would rise have reversed their positions.”
Of course, when the currency floats against a reserve currency, nations do what they can to protect their own interests. C. Fred Bergsten of the Peterson Institute for International Economics has observed: “Here’s the world’s second-biggest economy and the biggest global trader, aggressively and blatantly manipulating its currency for over five years to keep it hugely undervalued. That’s exactly what the whole Bretton Woods system was designed to avoid replicating after the 1930s, so in that sense the system has failed the stress test.”
China’s actions don’t make former Massachusetts Governor Mitt Romney happy. He has said he wants ‘to make sure that if a nation cheats like China has cheated, we call them on the carpet and don’t let it continue.”
China, of course, may yet become a transformer – much like the bull Optimus Prime who is defeating all comers in Chinese bull fights, according to the Wall Street Journal. “Trade is not the only measure of China’s economic influence,” the Economist has noted. “Many foreign companies have set up shop inside the country, profiting from its market without having to export to it.” It reported: “China may not be a member of the G7 group of big, rich democracies. But it is already a member of the so-called S5, or Systemic Five, a group of economies subject to extra IMF attention because of their ‘systemic’ significance. China, according to the fund, is the most ‘central’ trading partner for 78 countries. Its appetite for imports, especially the base metals and oil that feed it vast industrial machine, flatters th exports of countries as far afield as Azerbaijan and Angola.”
Indeed, there is every indication that China will remain the bull in the shop of international trade and monetary policy – until a competent matador like the gold standard enters the arena.