The Effect of the Decline of the Dollar in China
Since the start of my China assignment in July, I have seen the dramatic effect of the devaluation of the US dollar in very real terms. Given that China's economy runs mostly on cash I have to make regular ATM withdrawls in the local currency. Take a look at the cost of my regular 3000RMB withdrawal over the past 8 months.
| Date | RMB | USD | Ex. Rate |
| | 3000 | $ 397.93 | 7.54 |
| | 3000 | $ 398.26 | 7.53 |
| | 3000 | $ 399.45 | 7.51 |
| | 3000 | $ 399.89 | 7.50 |
| | 3000 | $ 400.06 | 7.50 |
| | 3000 | $ 400.43 | 7.49 |
| | 3000 | $ 400.23 | 7.50 |
| | 3000 | $ 401.75 | 7.47 |
| | 3000 | $ 402.54 | 7.45 |
| | 3000 | $ 402.76 | 7.45 |
| | 3000 | $ 403.01 | 7.44 |
| | 3000 | $ 403.69 | 7.43 |
| | 3000 | $ 403.11 | 7.44 |
| | 3000 | $ 404.97 | 7.41 |
| | 3000 | $ 405.99 | 7.39 |
| | 3000 | $ 406.25 | 7.38 |
| | 3000 | $ 407.72 | 7.36 |
| | 3000 | $ 407.56 | 7.36 |
| | 3000 | $ 409.46 | 7.33 |
| | 3000 | $ 409.51 | 7.33 |
| | 3000 | $ 408.91 | 7.34 |
| | 3000 | $ 411.70 | 7.29 |
| | 3000 | $ 411.80 | 7.29 |
| | 3000 | $ 415.05 | 7.23 |
| | 3000 | $ 416.90 | 7.20 |
| | 3000 | $ 420.41 | 7.14 |
| | 3000 | $ 421.78 | 7.11 |
| | 3000 | $ 421.81 | 7.11 |
| | 3000 | $ 423.95 | 7.08 |
It now costs me $26.02 more for the exact same amount of money over here. That adds up quickly over time. In fact if the decline of the dollar continues at its current pace I'm experiencing, it could be equal to China yuan (RMB) in less than 5 years.
What does that mean? Well my Papa Johns pizza would cost me $129USD in China and all of those low cost goods that keep the US economy humming would likely be a thing of the past. I would imagine inflation would be threw the roof, its a scary thought.
Comments (3)
that's what we get for: (i) running a trade deficit; (ii) running a crazy budget deficit; (iii) cutting interests like there is no tomorrow to bail out bubble investors.
What can I tell you, it looks like the world has caught up to our economic reality.
Posted by shadox | March 13, 2008 9:41 PM
Hi 2million,
The issue of RMB appreciation is attracting alot of debate in China at the moment.
By conventional thinking, increasing the yuan slowly will reduce Chinese competitiveness, slow growth, and net cash inflow, hence slowing domestic inflation.
The flip side of this is that if the yuan is slowly (in a predictable manner) then lots of people like yourself (and more importantly institutions) are going to work out that investing in RMB denominated assets is a low risk investment. Hence, the slow (predictable) rise of the yuan actually encourages more cash inflows.
At least some media commentators are talking about the idea of a sudden one-off revaluation like inn 2005 although that doesn't seem to be on the government agenda and who knows what effect it would have.
On a lighter note, I currently pay 2.5RMB for a 650ml bottle of beer. Even if the yuan one day reaches parity with the dollar I can probably still live with $2.50 per beer.
Posted by James | March 14, 2008 4:32 AM
Yes I saw this exchange rate change since I was offerred an expat assignment in January and our relocation to China last week. My wife and I are thinking of transferring our full three years (duration of assignment) living expenses from US savings into China RMB as soon as we get a bank account open here.
Posted by jj | April 22, 2008 6:22 AM