The U.S. Should Start Buying Chinese Renminbi
Much has been made of China's currency peg, which ties the renminbi to the US Dollar at a constant rate. It is essentially a mercantilistic policy that gives China an unfair trade advantage over the rest of the world. The US, Europe, and even Asia seems relunctant to do anything to China that would force them to eliminate this policy, however.
But what if the US were to start buying Chinese renminbi in large amounts? This would force China to either:
(A) Take on a huge influx of US Dollars, or
(B) Raise the currency peg, or
(C) Eliminate the peg altogether.
I see no reason why the US could not buy the renminbi and if most people agree that the Chinese renminbi is very undervalued while the USD might be overvalued, then why not do it? Either the US profits off of it or China is forced to react by weakening or eliminating the currency peg. The latter would definitely be good news for it, since allowing the renminbi to naturally appreciate vs. the dollar would help boost US exports, and bring jobs back to the US.
Maybe I'm just thinking aloud here, but if their going to play mercantilism game, I see no reason why we can't buy their renminbi for cheap. This will at least eliminate one factor helping to create bubbles here in the US.