Job Discussion Forums

[waxwing]

The dollar has lost 50% against the Euro since 2000.
In the last few days it hit yet another all time low of 1 EUR = 1.33 USD. Some people suggest that this recent additional plunge is a result of GWB's reelection and his known proclivities for ignoring massive budget deficits in favor of huge tax cuts (for the rich, of course).

Is anybody else worried about this?

For all of us in China it's currently a bit of a pain because the Chinese currency, the RMB is pegged to the USD.

But for all the TEFLers out there, is it time to reconsider whether to accept a $-pegged salary?

Here is one fairly nice summary of the situation (I'm sure there are many others):
http://www.csmonitor.com/2004/1122/p01s01-usec.html

[sojourner]

Here's an article from the Wall Street Journal, re the situation in China.

Peter

- - - - - - - - -

Pilloried on the street, mighty greenback now China's 'money to burn'
More Chinese investors are dumping their U.S. dollars as the currency's reputation for stability erodes,

By GEOFFREY YORK
BEIJING -- In Chinese street slang, they are known as the "yellow bulls" -- the underground traders who lurk outside the banks in aggressive pursuit of currency deals. But despite their business zeal, there is one commodity they are unwilling to buy on the street these days: U.S. dollars.

"Everyone is converting their dollars to Chinese yuan," one black-market trader confided as he stood outside a bank in Beijing yesterday.

"Our business is getting more and more difficult," he said. "It's hard to find anyone buying U.S. dollars any more. The value of the yuan is definitely going to increase."

These are anxious days for China's legions of canny traders and savers. Not long ago, they had faith in the American dollar as the safest of safe havens -- a guaranteed stable investment. For years, China had survived financial crises by pegging its currency to the U.S. dollar.

But the prolonged slump in the dollar, along with hints of an approaching revaluation of the yuan, has created a new phenomenon here: the shunning of the greenback.

"Nobody with a U.S.-dollar account can sit quietly at home any longer," said one man in a queue at a Bank of China branch yesterday. "The black market is a sign of the market trends. The government might say that it won't change the official exchange rate today, but tomorrow it could announce a change."

For the past decade, China has held the yuan to a fixed value of about 8.3 to the U.S. dollar. In the past, the black-market traders were often willing to pay up to nine yuan for a dollar. But today the unofficial rate on the street is only 8.22 yuan to the dollar -- if you can find anyone willing to buy dollars.

Many Chinese investors are nervously wondering whether they should get rid of their dollars. "I'm worrying about it," said Li Dan, a 28-year-old information technology manager in Beijing.
"I've got $60,000 [U.S.] accumulated from shares in my company. What should I do? Who can tell if the exchange rate will decline? If I don't convert my money to yuan, I could lose thousands of dollars. That's a lot of money."
Many have already dumped their dollars. By the end of October, the switch from dollars to yuan had contributed to a 3.8-per-cent drop in foreign-currency savings by Chinese households, compared with a year earlier. This amounted to a decline of $1.7-billion in household foreign-exchange savings this year alone. At the Shanghai branch of the Bank of China, meanwhile, the conversion of dollar accounts to yuan accounts increased by 17 per cent in September and 34 per cent last month.

The dollar has lost the aura of stability that it once enjoyed here. And with the Chinese economy booming, a growing number of Chinese investors are regarding the yuan as the new hard currency. On the pages of a Hong Kong newspaper this month, the trend was illustrated by a picture of a man setting fire to an American dollar bill on Tiananmen Square, with the caption: "Money to burn."

Many Chinese are betting that the dollar will continue to decline and the yuan will be revalued. In the non-deliverable forward market in Hong Kong, the current level of forward contracts suggests that the yuan would rise to a level of 7.887 to the dollar within 12 months if it were freely traded.

The Chinese media and bank officials have sent out a growing number of signals that the yuan could be revalued in the next few months. The central bank has talked of possible "flexibility" in the value of the yuan. Some reports predict a widening of the trading band in the first quarter of next year.

"The decline of the U.S. dollar . . . may be the final factor convincing Beijing to revalue the currency," concluded a report this month by the Eurasia Group, a New York-based firm of political analysts.

"A modest currency revaluation increasingly appears to be Beijing's next step in cooling its economy."

The deputy governor of China's central bank, Li Ruogu, confirmed this week that China is gradually moving toward greater flexibility in its dollar exchange rate, although he emphasized that it would not happen as long as Western leaders continue to apply heavy pressure on China to revalue its currency.

"Everybody is saying that the value of the yuan will increase," a Beijing bank customer said yesterday.

"Even though the central bank says it will happen, I think it is just a matter of sooner or later."

Rising currency giant

With the Chinese economy booming and the U.S. dollar wavering, Chinese investors are dumping their greenbacks, convinced the yuan is becoming the new hard currency.

The people's currency
The name
Chinese money is called Renminbi, which means People's Currency.

The issuer
The People's Bank of China. The popular unit is the yuan.
Bank of China Governor
Dai Xianglong

Exchange rate
The yuan's exchange rate has been pegged to the greenback for a decade, and one U.S. dollar equals about 8.3 yuan.

Denominations
0.10, 0.20, 0.50, 1, 2, 5, 10, 50, and 100 Yuan. Smaller values are issued as coins, with 1 yuan = 10 jiao = 100 fen.


History

1023
The Chinese are the first to use paper currency, issued during the S'ung dynasty.

1948
People's Bank of China was established Dec. 1, and was the first sector to be socialized by Chairman Mao's new republic.

1966-1876
Bank stripped of many of its functions during the Cultural Revolution, but it regained responsibility for issuing and controlling currency.

1983
Bank assumes responsibilities of a central bank, a status not legally confirmed until 1995. It is modelled after U.S. Federal Reserve system, with monetary policy managed by various local offices.
1998-99

In the wake of the Asian currency crisis, Bank is under pressure to devalue Renminbi. Replaces quota management of credit with assets-to-liabilities ratio management.

Dumping the dollar
The Chinese are living up at banks to sell U.S. dollars for yuan. China's foreign reserves are climbing as the central bank buys those dollars to keep the exchange rate steady.

SOURCE: THE WALL STREET JOURNAL

[tradinup]

The US dollar may stay weak but I don't think the yuan can stay so undervalued forever. The Chinese government is under a lot of pressure to free the yuan and it should happen eventually.

I can understand if you're in your 50's and want to retire soon back to the states. If not, who cares? We all do fine in China...

[waxwing]

[ChinaEFLteacher]

it seems that the u.s. dollar is matching the u.s. credibility and dropping like a fly. this post has convinced me to finally withdraw my meager u.s. savings and reinvest it in here in china. would anyone care to tell me why that would not be a good idea? is the RMB more stable?

[dmb]

For once I am pleased that I am paid in Turkish Lira. However, only for one more month. On January 1st 6 zeros are being cut. So, 1,000,000 TL will become 1 YTL. It's going to be confusing.

[Roger]

I am right now reading STUPID WHITE MEN - a true eye-opener!

I remember a few years back when the euro was phased in; how derogatory the American comments were... Now the euro is one 3rd stronger than the U.S. yoyo, and going ever stronger, much to its own detriment.

There was another well-founded article written by W. Plate in the SCMP, one that no doubt would have been equally true before G. Bush became the President of the U.S.A.: America is living on borrowed money. IT is not working hard enough to pay for its extravagant lifestyle. It subscribes to a credit philia - and sooner or later it will crash.

Currently, the world's 2 biggest national economies are the two most worrisome ones: Japan and the U.S.A. Japan because its banks are sitting on a pile of bad IOU's, and the U.S.A. because it has borrowed American dollars from the entire international community. IT is the world that is footing America's debaucheries, and eventually this will have to stop!

Is it true that American pilots make do on less than 15'000 a year? THen, that is an excuse for them to TEFL in China!

[matttheboy]

From a purely personal view i'm more than happy to see the dollar plummet. Although not officially pegged to the $, the Argentine peso has been stuck at around 3 pesos to the $ for the last couple of years (before it was pegged at 1-1 until the economic crash over here). So when sterling, the currency i hold all my savings in, gains against the $ it also gains approximately the same against the peso. This means that the money i earn teaching in Argentina is worth less (or even more worthless) abroad but i don't earn enough to save anyway so i don't really care; it covers my rent and food. With my savings gaining in value in relation to the cost of living over here i can indulge myself more than usual knowing i'm not spending that much money...(and the cost of living if using foreign currency is very low as it is).

I can see why you might worry a bit if you're earning a dollar pegged salary. $1200 a month in Europe would be difficult to live on now but not so bad a year or so ago. If you're living in a dollar pegged economy i wouldn't worry unless you're planning to leave soon. The $ won't stay this weak forever. It was only 7 or 8 years ago that it was last this weak and it bounced back. It even got up to 1.35 to the � at one point. And although the Chinese government says it has no intention of doing so it will have to float the RMB at some point in the coming years, the value of you wages will go up and a weak dollar will benefit you as for less RMB you'll be able to buy more $ to go home with (if you're from the States that is).

[Aramas]

The Australian Peso may as well be pegged to the US dollar - that's what happens to the currencies of countries that inhabit America's rectum. I just hope that I can get all of my Australian currency converted to Euros and establish myself in Europe before America's chickens go home to roost. We saw what one bombed building did to the US economy, and it doesn't take much imagination to see what the future holds for them.

I would not be surprised if a lot of European emigr�s are kicking themselves at present.

[kev7161]

If the RMB is revalued while I'm in China, then that is good news for me. Currently, if I exchange 1000rmb for US dollars at $1 = 8.3 rmb, then I get around $120. If it gets revalued at, say, $1 = 7.5 rmb, then I'll get about $133. I could be happy with that.

[waxwing]

Another all time high for the euro against the dollar today (1.345), and GBP/USD is the highest for 12 years at 1.94 ...
There's a lot of talk about revaluation, do you think it will be 7.5? (Did I read 7.8 somewhere?) .. A float would be nice but that's not going to happen.
If you're from the US, then revaluation of the Yuan matters, but the dollar tanking doesn't. For the rest of us, it's the latter that matters most.
Well, forgetting about TEFL teachers, I'm not sure if the world economy can handle this continual slide in the world's most important currency.

[ChinaMovieMagic]

http://www.tompaine.com/print/apocalypse_not_yet.php

December 06, 2004


...Now we hear rumors of Russia trading dollars for euro, of India
diversifying its reserves, of China contemplating the same. The
reaction on Wall Street has been a trifle unnerved. In comments
relayed furiously across the Internet, Morgan Stanley economist
Steven Roach apparently told clients to gird for an "economic
Armageddon." The d*ke once solid, starts to crack; none can say just
where or when it will break. But the little Dutch boy, Alan
Greenspan, went to Frankfurt a few days back and plainly stated that
he did not have enough fingers.


Who Wins? Bush's Base

The most stunning aspect of these events has been the insouciance of
the Bush administration. Neither the president, nor Secretary of the
Treasury John Snow, nor anyone else has troubled even to emit the
usual platitudes about the greenback媙ot, at least with the slightest
conviction. It's almost as if they've figured it out. It's almost as
if they realize the awful truth. Which is that the dollar's decline
is mainly good for their friends, and bad mainly for those about whom
they couldn't care less. Yet that is the truth. The dollar's decline immediately boosts the
stock market, for a simple reason. Multinationals have earnings in
the United States燼nd in Europe. When the dollar falls, U.S. earnings
stay the same but the European earnings go up when measured in
dollars. Oil prices in dollars will stay up媋t least enough to
prevent the price in euro from falling. This too helps U.S. oil
company profits, measured in dollars. Meanwhile, China will keep its
renminbi tied to the dollar, and prices of Chinese imports won't rise
much, so Wal-Mart isn't badly hurt. The American consumer will get
hit, but mainly on the oil price rather than on the rest of the
consumption basket. Many will grumble, but few will recognize the
political roots of their problem.

Since the U.S. owes its debts in dollars, the financial blow will
fall first on China and Japan, in the form of a depreciation of their
holdings. Tough luck. Latin American debtor countries will get hit on
their exports, but helped on their debt service. Those (like Mexico)
who export almost exclusively to the U.S. will get squeezed; others
(like Argentina) who market to Europe but pay interest in dollars
will be hurt less. An unequivocal loser is Europe, which has been
hoping for an export-led fix to their own, largely self-inflicted,
mass unemployment. The Europeans can forget about that.

If Bush's insouciance works, the dollar could decline smoothly for a
while and then, simply, stop declining. U.S. exports might recover
somewhat, helping manufacturing, though there's no chance exports and
imports will balance. But even so, the dollar system could stay
intact, so long as China and Japan remain willing to add new dollars
to their depreciated hoard. Given that their interests lie in
maintaining export activity and the jobs it creates, they may very
well make that choice. Large-scale dollar purchases by the European
Central Bank are also a remote possibility (the option has been
mentioned on the periphery of the ECB). The problems would return
later on, but meanwhile, such an action would prove that God really
does look after children, small dogs and the United States.

Apocalypse Considered

What could up-end the apple cart? An unstoppable panic is probably
not yet the largest risk. There are simply too many dollars in the
theater of the world economy, too few exits and only a few
elephantine players. The latter would soon be discouraged from
selling by the soaring price of the available alternative assets, and
the run would fizzle out. Thus the final dollar crisis will probably
wait until a political crisis媠ay, someday with China媠ets it off....

[moonraven]

OPEC deposits are increasingly in Euros rather than in dollars. Only 61% of the deposits in 2004 have been in dollars. This trend is expected to continue.