The Second Plaza Accord

Be smart; Why not have both?

Recently, America has been developing a bill called the Currency Exchange Control Act to penalize China for undervaluing its yuan - and the Chinese are not happy with it. Although a number of Senators agree on imposing the act, others on the other hand, are much more skeptical if not oppposed to it. The funny thing I find about this whole drama is that America claims that the undervalued Yuan (see how Chinese & Indian government undervalues their currency) has resulted in the loss of jobs, in addition to the widening trade deficit between US and China. Some are claiming that America is indirectly trying to push China into the same position it did to Japan through the signing of the Plaza Accord; resulting in a devastating deflationary spiral in which Japan has been suffering over the past 20 - 30 years.

Now to be frank, I couldn't agree more on how America is playing the dirty game again. They did it to Japan under the banner that it would reduce trade deficit but it is nothing more than just a political ploy. What I think the American government is trying to do is push the attention away from them by using external distractions. Despite all the calls on how Chinese yuan is undervalued, the new Big Mac Index suggested that the Chinese Yuan is not severely undervalued as it is claimed to be (although this itself has its own limitations). Another key point which was mentioned is that the passing of the bill may have more harm on America's exports to China than imports; fits the bill - neither benefiting  both parties.

Its funny how despite strong indications that the global economy is heading towards a double dip recession, we have countries like America (as well as Argentina and Brazil) trying to enforce trade protectionism policies, claiming that it would help put their economy back on tack where in fact, the risks of it backfiring is apparent. But like all of the things the American Government has been doing for the past 10 years; its nothing more than a political ploy. It seems that they're much more encapsulated in trying to find an external explanation to the public rather than taking the blame themselves, and rather than thinking about the American public they have been selfish; affecting the entire world at the same time.

I hope they're happy with what they're doing.