Triangulation of Euro Dollar and Yuan.

Thomas Palley , reporter of Asia Times, suggests us an interesting theory on Triangulation. We use triangulation in the field of international relations theory to describe when an actor of international system, normally a state, exploit it relation with another actor as leverage to extract concessions from another part of the Triangle.

In that case, we can observe a reverse triangulation from the Chinese authorities on economical policy. US and Europe and fiercely competing for saling to China and they do not cooperate to pressure the country to adjust the yuan. Consequently, Beijing has its benefits of this European-American currency competition: the undervalued Yuan.

An overvalued Euro firstly helps to bring down the large European’s trade suplus with the United States.

Secondly, an overvalued Euro speeds up the European’s Union deficit with China, which is expected to be $260 bilionsin 2007.

Thirdly this trade deficit caused by an overvalued Euro might cost jobs in the old Continent, and at the same time the European manufacturing, being less profitable, reduce investment spending, disturbing even more European economies.

Last but not least Europeans companies have a great incentive to shit its production to developing economies such as China.

By the way , on what side of the Triangle should be the Yen?

One response to “Triangulation of Euro Dollar and Yuan.

  1. Also very interesting to complete:

    Who Gains When the Dollar Sinks?

    Scott B. MacDonald
    YaleGlobal, 27 November 2007

    George Soros, recently announced plans to sell his US home and convert the proceeds into Chinese yuan, adding “I’m moving to Asia because moving to Asia now is like moving to New York in 1907 or London in 1807. It’s the wave of the future.”

    The weaker dollar by itself does not spell the end of US power, but it does signal the shaking of geopolitical plates built on the premise of a strong dollar. If nothing else, it should send a message to Americans that it is time to start putting their economic house in order because the rest of the world is increasingly less inclined to finance its spending.

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