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Comment by msy | Hacker News Reader

It's not a floating currency, it's directly controlled by politicians. Holding yaun is taking a speculative currency bet on the competency of the Chinese Communist Party to successfully manage the Chinese economy.

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Ditto for the dollar. You're taking a bet on the Federal Reserve's competency in regulating the US economy.

Yeah, and given the results of the past decade I'm inclined to trust the Communists... Not that they're actually communists; they're just a really big national corporation, imho.

Indeed, more like a well-runned corporation with 1.3 billion workers.

Well run? You've obviously never been to China.

Why would you need to visit China to have an opinion that could be arrived at by looking at financials - a common practice in measuring success. Just look at a portfolio of large Chinese companies - they are doing well, thus I would also hypothesize that they are well-run companies.

The numerical data to which you have access is not necessarily accurate. Corruption, bribery, fabricated numerical data are par for the course here.

He was talking about China as a country and as an economy. If you come and visit, it is immediately obvious that there are problems.

Just because there are problems does not necessarily mean that (as a whole) it is being run poorly.

Chinese firms are riding a huge wave of growth driven by wage differentials. In this macro context, it's easy to make a lot of money with poor management.

*trillion

You might want to look that statistic up before you try and correct someone again.

Oops, I misread that as cash on hand, but looking at it again, I don't know how I could have mistaken it. Definitely not 1.3 trillion people...

I'm not inclined to trust the communists more than the Fed, but I am inclined not to put all my eggs into one basket.

The above discussion makes little sense.

By maintaining USD peg China has no independent monetary policy - it's monetary policy is directly influenced by Federal Reserve.

China, not the Fed, has ultimate control over their monetary policy. They can always change their monetary policy and probably will have to. Which is what the discussion is in fact about, if you read the original article.

China, not the Fed, has ultimate control over their monetary policy.

sure, but since 1994 they haven't really exercised that ultimate control:

http://en.wikipedia.org/wiki/File:1_RMB_to_US_dollar.svg

and despite all promises to the contrary last year, they are still not exercising it to any substantial extent:

http://www.google.com/finance?q=NYSE:CYB

If the Chinese keep up their peg, holding RMB is equivalent to holding dollars.

If they fail to maintain the peg, the RMB will most likely rise. Most US consumers are already exposed to the downside of this risk - they have expenses which will rise if the RMB goes up (e.g., all the goods they purchase which are made in China).

Holding RMB is a hedge against this.

Tell me more about it :)

I myself have a Long Straddle on CYB since some time last year, betting that it moves in either direction.

Let's just say hoping to make guaranteed profit cause chinese promised it isn't such a great strategy :)

They have 1 week more to move though, just in time for Paramount Leader's visit to D.C.

Trust them to do everything they can to keep it growing. People are in China are only generally content with their government because every year everyone gets richer and richer, except the family five blocks down the road that had their house confiscated and compensated only 25% market price because the local council is planning to build a `public facility` on the land.

A growing economy does not necessarily correlate to an appreciating currency when its value is decided by political actors.

I expect them to keep activity very high, but I don't expect them to allocate capital well in a way that will result in much profit and sustainable growth. This could last for a while, but IMO it's very unstable and could blow up faster than many expect.

Part of my reasons for believing this are stated in this presentation (which has been posted on HN, iirc):

http://dl.dropbox.com/u/6010227/Webshare/China%20Japan%20Pre...

Similar to the United States, except here your house gets seized to build a factory for Pfizer. http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London

Horrendous action, no doubt. But there was an interesting follow-up:

"Prior to Kelo only eight states specifically prohibited the use of eminent domain for economic development except to eliminate blight: Arkansas, Florida, Illinois, Kentucky, Maine, Montana, South Carolina and Washington.[30] By July 2007, 42 states had enacted some type of reform legislation in response to the Kelo decision. Of those 42 states, 21 enacted laws that severely inhibited the takings allowed by the Kelo decision, while the rest enacted laws that place some limits on the power of municipalities to invoke eminent domain for economic development. The remaining eight states have not passed laws to limit the power of eminent domain for economic development." (from the same link)

I don't think you'll see that in China.

One person's blight is another person's economic development opportunity.

Or when the local town planner adds extra restrictions to your property, so the value goes down and they can snap it up for a bargain.

Saw this the other day and it seems applicable:

Proverbs 13:8 "A person’s riches may ransom their life, but the poor cannot respond to threatening rebukes."

I was thinking about it in relation to the US legal system, but it applies to politics as well. If some local politician tries to screw you over, the appropriate response is to throw money at the court of local opinion and whoever will run against them and destroy them at the next election.

After all, if they abuse politics as a means of enriching themselves, they are unworthy to hold office.

Kick up a stink, force a by-election, start taking out ads against them in the papers etc.

Accuse them of corrupting the youth of Athens (worked for Socrates opponents).

If it had to, couldn’t the party trash the currency (from an international investor’s point of view) without trashing the economy?

Not without also trashing it for those in China using it as a store of value, and not without the cost of price instability being imposed upon anyone selling/buying goods with the currency during the process.

You can if every thing they want to buy is made in your country.

The US can't half the value of the dollar to boost exports because everything in Walmart that is made in China will double in price.

China can because everything it's people want to buy in GreatWall-Mart is already made in china. As long as the government steps in to subsidize imported fuel the people wouldn't notice as long as they didn't travel - and you don't want them to travel anyway.

Fuel is needed for all sorts of industrial activity too, including farming.

But I suspect less so in china than the US. I doubt that a major part of the Chinese diet is exotic fruit flown half way around the world out of season.

China does have oil reserves and could always 'spread democracy' to some 3rd world country if it needed more.

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