Although a week or two old now, it is worth bringing to readers’ attention an article written for Chinese news site china.org.cn called ‘Bogus arguments for RMB revaluation‘. In it, the underlying reasons behind President Obama’s recent visit to China are explored.
If the arguments presented for RMB revaluation by the US administration have no factual basis, why are they being put forward? The real answer lies not in trade but in debt – as other writers, such as Daryl Guppy, have rightly pointed out. In asking for RMB revaluation, President Obama’s advisers were, in effect, asking China to donate $150-$300 billion in RMB to the US via debt reduction.
The arithmetic of this is simple. China’s holdings of US dollar assets, chiefly Treasury Bonds, are around $1.5 trillion, or 10.2 trillion RMB. A 10 percent devaluation of the dollar vis-à-vis the RMB would reduce the value of these holdings to 9.3 trillion RMB, and a 20 percent dollar devaluation would reduce their value to 8.5 trillion RMB. In either case the U.S. is asking for its debt to China to be reduced by 10-20 percent in RMB terms.
It may now be seen why President Obama’s advisers have a vested interest in not examining the factual situation of China’s trade. They are seeking a large debt relief package. Other countries, however, do have an interest in examining the facts carefully – as they will not benefit from the debt relief but will suffer from the adverse trade effects.
As the excerpt above makes clear, the biggest campaign for debt relief being waged in the world at this moment is not for the poverty stricken and oppressed nations of Africa, Asia and Latin America but for the most powerful country on earth, the United States. It is a further example of the absurdity in the way the world order is currently composed.