CHINA CURRENCY WINS

By devaluing its currency, China makes its exports less expensive.

By devaluing its currency, China triggers Republican fears about currency manipulation. This impacts the possible Asian free trade agreement. China does not want the US to have a free trade agreement that includes the rest of Asia, but not China.

By devaluing its currency, China brings its currency closer to its actual value. China would like to have its currency be respected and used like other countries use the dollar. NO ONE will use China's currency instead of the dollar unless China's currency is stable and is freely traded on the currency market.

China sets the value of its currency by edict, which means no wise investor can trust that the Chinese government will not unilaterally change the value of its currency to benefit China.

So China takes a risk devaluing its currency. But clearly the benefits outweigh the risk, especially if China's devaluation can derail the Asian free trade agreement.

During the Greek crises, pundits discussed how Greece might have been better off with its own currency. This is because the market would have devalued Greece's currency, making Greek exports cheaper in the global market.

Eventually, China will have to allow its currency to be traded like other currencies. Until that day comes, it is unwise to rely on Chinese currency in the same way people rely on the dollar.