US Treasury Secretary Hank Paulson (or Paulson's speechwriter, at least) calls for, among other things, faster yuan appreciation in his latest missive in Foreign Affairs on China. Recall that during his prior years as CEO of Goldman Sachs, he was always keen on establishing amicable relations with the powers-that-be in the PRC. It appears that little has changed. Do read it if you are at all interested in the most important bilateral economic relationship of our time. What follows is the concluding part entitled "Looking Ahead" where Paulson identifies America's policy options towards the Middle Kingdom for his successor. While I do believe that Paulson makes way too much of the strategic economic dialogue (SED) events that have been held between officials of the two countries, his reasoning reflects current US policy to a reasonable extent. Will his successors be more combative?
Going forward, there are three possible ways for the United States and China to pursue their economic and trade relations: robust engagement, dispute resolution through multilateral and bilateral enforcement measures, or punitive legislation. Since a retributive policy would be counterproductive and would harm U.S. economic interests, the U.S. government has chosen the first two approaches.
And rightly so. Since Washington stepped up its economic engagement with Beijing through the SED two years ago, the U.S.-Chinese relationship has deepened and expanded. By encouraging top-level discussions of the two countries' long-term strategic priorities, the SED has found effective ways to manage short-term tensions surrounding trade disputes. It has alleviated a complex set of concerns in the U.S. Congress in a way that has led to a significant appreciation of the renminbi and forestalled dangerous protectionist legislation. At the same time that U.S. consumers were growing deeply concerned about product safety, the SED developed a comprehensive plan for improving the quality and regulatory oversight of foods and drugs imported from China (the effort could even serve as a global model for product safety). And as the world was becoming more eager to reduce its dependence on oil, the SED initiated the Ten Year Energy and Environment Cooperation Framework to help expedite the United States' and China's efforts to increase their energy efficiency. The SED has enabled progress on significant noneconomic issues and more progress on economic issues than otherwise would have occurred.
These successes have created a foundation of mutual understanding and trust and a platform for further progress. History has shown that the ties between the United States and China have been most stable and mutually beneficial when a common interest has united leaders in Washington and Beijing. During the Cold War, balancing the Soviet Union's power in Asia was that shared interest. It generated trust for a very young U.S.-Chinese relationship and facilitated substantial bilateral cooperation. Now, the SED has reoriented U.S.-Chinese relations based on the strategic rationale of sustaining global economic growth. This unifying theme will motivate policymakers in both countries and offers the chance to redefine the terms of the two countries' relationship from simple cooperation to joint management and, perhaps eventually, even genuine partnership. Such a recasting will be an invitation to China to participate in global affairs as an equal -- a position that Beijing covets.
I have learned firsthand that the United States is much more effective at resolving global issues when it approaches them multilaterally rather than unilaterally. On every major economic, political, and security issue, the path that China chooses will affect the United States' ability to achieve its goals. This will also be true under the next U.S. administration. The SED must be used to help manage the myriad economic issues that will undoubtedly arise and help keep the vital U.S.-Chinese relationship on an even keel, productively advancing shared interests while working through enduring differences. It is possible to manage these challenges in a way that advances both U.S. and Chinese interests. And it is my hope that the next U.S. president will expand on the SED to take U.S.-Chinese relations to the next level.
Dropping Euro: Doh Curse of the Homer (Simpson)?
The recent and rather dramatic fall in the value of the euro from heights previously uncharted is attributed by pundits to any number of things: (1) the Eurozone looks like it's about to enter recessionary waters, if it isn't there already; (2) the commodity price boom which has favoured the euro is coming undone as global demand for commodities slows in response to ebbing consumption in the world's #1 final destination market, the United States; (4) the US stock market has regained its footing somewhat, bolstering the beleaguered dollar. Certainly, sensible arguments can be constructed out of one or more of these points.
On the wackier side of things, however, have I got one for you. Curses are most often spoken of in sports, where superstition is rife. For the Chicago Cubs, you have the Curse of the Billy Goat. For Japan's Hanshin Tigers, there's the Curse of the Colonel. As you would expect, currency trader are generally a less superstitious lot. While the business world has its own set of rituals like the opening bell that augurs a new trading day and whatnot, out-and-out superstition does not feature much. However, I recently came across a fairly amusing article in Reuters about a Spanish shopkeeper who, while tallying up his day's labours, came across a doctored euro coin. One of the interesting things about euro currency is that EU members can place their national symbols on one side of locally minted notes and coins even if they are usable elsewhere in the Eurozone.
Lo and behold, the image of the generally well-liked Spanish King Juan Carlos had been replaced on the one pound coin by the likeness of that famous American icon, Homer Simpson [!] In the report, it is said that the shopkeeper told of his finding last Friday. If you look at the chart above, the looooong red line represents Friday's trade when the euro lost a whopping 3.3 cents in a single day. Coincidence? Perhaps not.
The discovery of this act of desecration may have set off forces beyond the reach of monetary officials or currency traders. Superstition aside, I lie in wait for a good opportunity to rid myself of my remaining dollar holdings as I am a firm unbeliever in the monetary and fiscal policies of the United States (more on this later). The euro may take some lumps in the meantime that will enable me to find a good price at which to sell dollars and buy euros. Maybe a cartoon character had something to do with it:
A one euro coin has turned up in Spain bearing the face of cartoon couch potato Homer Simpson instead of that of the country's king, a sweetshop owner told Reuters on Friday.Jose Martinez was counting the cash in his till in the city of Aviles, northern Spain, when he came across the coin where Homer's bald head, big eyes and big nose had replaced the serious features of King Juan Carlos.
"The coin must have been done by a professional, the work is impressive," he told Reuters.
The comical carver had not taken his tools to the other side of the coin displaying the map of Europe. So far, no other coins of the hapless, beer-swilling oaf have been found in circulation.
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