A Quote by Steve Hanke
After the maxi yuan depreciation of 1994 and until 2005, exchange-rate fixity was the order of the day, with little movement in the CNY/USD rate.
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Since China embraced Deng Xiaoping's reforms on 22 December 1978, China has experimented with different exchange-rate regimes. Until 1994, the yuan was in an ever-depreciating phase against the U.S. dollar.
If a country is an attractive place for foreigners to invest their funds, then that country will have a relatively high exchange rate. If it's an unattractive place, it will have a relatively low exchange rate. Those are the fundamentals that determine the exchange rate in a floating exchange rate system.
The lesson for Asia is; if you have a central bank, have a floating exchange rate; if you want to have a fixed exchange rate, abolish your central bank and adopt a currency board instead. Either extreme; a fixed exchange rate through a currency board, but no central bank, or a central bank plus truly floating exchange rates; either of those is a tenable arrangement. But a pegged exchange rate with a central bank is a recipe for trouble.
The U.S. berates China for its exchange rate policy, which Washington doesn't like. But one-sided pressure on China to change its exchange rate is misplaced.
We are now preparing for the reform of the yuan's exchange rate system. For such reforms to take place, we need good economic conditions... and we need to do it under tight control.
A nation's exchange rate is the single most important price in its economy; it will influence the entire range of individual prices, imports and exports, and even the level of economic activity. So it is hard for any government to ignore large swings in its exchange rate.
The stability of the rate is the main issue and the Central Bank manages to ensure it one way or another. This was finally achieved after the Central Bank switched to a floating national currency exchange rate.
Lobbyists know that a 0 percent tax rate on capital income is not, in fact, the lowest possible rate. There can be negative tax rates. There can be subsidies. There can be allowances for depreciation. Lobbyists are adaptive creatures.
Monetary policy is like juggling six balls... it is not 'interest rate up, interest rate down.' There is the exchange rate, there are long term yields, there are short term yields, there is credit growth.
What is the right exchange rate at one point is not necessarily the right exchange rate at another.
The IMF insisted that both Russia and Brazil maintain their currency at over-valued levels. Who are you protecting when you try to maintain that exchange rate by having high interest rates? You're protecting domestic and foreign firms that have gambled on the exchange rate. And who is paying the price? The small businesses that did not gamble [and no longer can afford loans], the workers who are going to be put out of jobs.
Exchange rate understandings are of little use on their own.
I once did something right. I played first-rate basketball. I really did. And after you're first-rate at something, no matter what, it kind of takes the kick out of being second-rate.
If you go to a second-rate place, and you are first-rate, it is very difficult to do first-rate work because you do not get that critical feedback you need for first-rate work on a daily basis.
Our tree is actually a tree of the short-term interest rate. The average direction in which the short-term interest rate moves depends on the level of the rate. When the rate is very high, that direction is downward; when the rate is very low, it is upward.
As you know, you go to war with the army you have, not the army you might want or wish to have at a later time. Since the Iraq conflict began, the Army has been pressing ahead to produce the armor necessary at a rate that they believe - it's a greatly expanded rate from what existed previously, but a rate that they believe is the rate that is all that can be accomplished at this moment.
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