Friday, August 14, 2015

“Beijing's only principle is power, and its only legitimacy for that power is economic growth. That's the implicit social contract it's struck with its people: you'll get rich, but you won't get rights.”

Said : Matt O'Brien, in his blog in The Washington Post of August 12, 2015. 

According to Matt, China's slowing economy has caused an exodus of $800 billion out of the country in 2014 alone. "This has made the yuan "want" to weaken," he writes, adding that the decline in the yuan was arrested by the government as it could easily afford to "spend some of its $4 trillion in reserves to keep it from falling."

Matt feels that China has been manipulating the yuan down for decades. But now, when the slow down in the economy has made the yuan "want" to weaken, Beijing wants a managed decline in the currency. A drop of 10 percent is not ruled out in small installments. The government is preventing the yuan from falling too far too fast. "China wants a weaker yuan, but on its terms," added Matt. He quoted Bloomberg economist Tom Orlik's observation in a note : "Our calculations suggest a 10% depreciation of the yuan would boost export growth 10 percentage points, but risk more than $400 billion in capital flight."

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