You are talking about another question: whether shall we increase or
decrease the currency rate right now. It seems you might prefer increasing
it to 3:1. However, it is another trap.
Benefit:
(1) to somewhat reduce the pain of inflation, especially control the cost of
import oil, iron ore, and etc.
(2) Rich people can buy more luxury good and invest abroad.
Nightmare:
(1) destroy the export, leading to unemployment. let's say now the rate is 6
each. Now consider 3:1, we at least need to sell at $3.34 to make it even.
However, the US people won't buy it, because it is too expensive, they would
like to purchase the items from the other countries, like Indian, Mexico,
and etc., if their price is less than $3.3. Remember, our product is highly
substitutable because it is short of innovation, patent protect, high-tech.
Our advantage mainly comes from low cost: human and land. But the other poor
countries are able to provide it at low cost, even though their is now
slightly higher than ours.
Therefore we will lose the competitive advantage in the global market if the
exchange rate goes up quickly. If so, lots of companies shut off,and people
would pain from no job. Remember the long-run strength of currency is based
on the steady economy growth. When the Chinese manufacturing goes down,
what is the power to support a strong currency in the long run?
(2) look at the actual purchasing power of RMB and dollars. After the
inflation in 2010. You can see it is very likely to buy a same product
cheaper in US than in China. (there are lots of comparison, so I don't want
to provide any detail). My feeling is that the purchasing power of US
dollars now is slightly higher than RMB at the current exchange rate. (US
never admits this point). So RMB's value would be heavily over-estimated if
the rate reaches 3:1. What happens the next? People knows RMB is not worth
that much, and would like to switch to dollars to avoid the risk. Remember
we are now experiencing the heavy inflation and are short of ways to invest.
It means the RMB's domestic value is decreasing while its global value is
increasing. Don't think it is very dangerous if these two trends continues
simultaneously? It would final trigger huge demand for US dollars, because
people eventually realize the RMB won't be wise to keep all RMBs, they need
some other currency to protect their asset. Then what happens?
(3) The RMB's value sharply drop, if the demand is overwhelm the total
reservation of dollar. Remember we have M2 = 73 trillion , now only have $1
.8 trillion reservation, but half of them not flexible, let's say $1
trillion flexible, then you see it only covers RMB 3 trillion, if the rate
is 3:1. So it will vanish immediately, if 4% of the total M2 would like to
avoid the risk. Then what, just as some friend said before:
30:1 应该是黑市的价。官方还是会维持 6:1 的,只是你换不到。失业率会在 25%
呵呵
Afterwards, as I said: the government tries to hold the exchange rate in a
short term, but fails in the long run.
We shall understand, when the currency starts to melt down, there is no way
to keep 6:1, because all the expectation turns to another direction, and
desperately need to change dollars. It is proved again and again in all the
black days of the stock market and exchange market.
Summary:
Currently, we can not do much to either increase and decrease the currency
rate. Either way to make a big change will bring the economy to the dead end
. From the perspective of people, we have already in the dilemma, either
suffer the pain from inflation or face the risk of unemployment. There is no
way to save both, consider now either the inflation is fast and the actual
unemployment is severe.