If China wants superpower status, it will have to issue its currency in size and let the global FX market discover its price.
Quick history quiz: in all of recorded history, how many superpowers pegged their currency to the currency of a rival superpower?
Put another way: how many superpowers have made their own currency dependent on another superpower’s currency?
Only one: China.
Second question: is pegging your currency to a rival power’s currency a sign of strength?
If the issuing nation won’t allow users and owners of its currency price discovery, few will want the currency because they can’t trust the state’s arbitrary, non-market price.
Why does China cling to state control of its currency’s valuation?
The obvious answer is that China’s economy and global role are too fragile to absorb a major revaluation of its currency up or down: a major loss in purchasing power would raise the cost of energy and other imports, while a major strengthening of the yuan would crush the global competitiveness of China’s goods and services.
As for the idea that China will unpeg its currency when it backs it with gold, recall that “backed by gold” means “convertible to gold.”
If China wants superpower status, it will have to issue its currency in size and let the global FX market discover its price. Anything less leaves China dependent on the U.S. and its currency, the dollar. If China is so powerful, why doesn’t it let its currency float on the FX market like other trading nations? Until its currency floats
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