If China relaxes its currency controls, the impact for the yuan, probably won’t match consensus expectations of a rise for the currency, says economist Gary Shilling.
The Obama and administration and many in Congress have been pushing China to allow the yuan, also known as the renminbi, to float freely.
The idea is that if China’s government steps out of the market, the currency will rise against the dollar. And that move would boost U.S. exports to China and reduce U.S. imports from China.
But Shilling doesn’t see it that way.
“If they took off all the controls, and the Chinese could invest abroad, the yuan (renminbi) would probably go down,” he told Bloomberg.
“That’s because people would want to diversify. All they can do now is put their money in banks, and they get a negative real interest rate.”
Stocks and real estate represent other investment options. But, “the government isn’t happy about speculation in either of those,” Shilling said.
Chinese leaders are well aware that the renminbi might drop if it floats freely, he points out.
“They sure don’t want to be pushed around,” Shilling said. “Obama made a huge mistake in trying to push them again.”
But real estate mogul Donald Trump says China is an unfair trader and arrogant.
“They think we’re the dumbest ... in the world. ... They laugh at us behind our back,” he told CNBC.
© 2016 Newsmax Finance. All rights reserved.