Article;
China risks following Japan into economic-coma.
Comment;
Recently I thought that
any currency should appreciate in the long run and moreover its domestic value
must also increase because marginal utility starts declining after reaching a
height therefore prices start falling. So in the long-run we have increasing
returns from money supply because prices start falling as every economy falls
in deflation after a boom period. And, it makes sense why prices start falling
in the long run because demand equals supply and after a point supply exceeds
demand and prices start falling. We call it deflation and as an example we have
Japan and the US… They are trying to avoid a deflation but it is natural for
prices to fall in the log-run, as have been said before, and we can make use of
deflation too to increase real wages and income (any type of wealth) by
floating a lower denomination of a currency. So far China has used higher
denomination means Yuan to Renmibi but now it has to move from Renmibi to Yuan.
Money-supply wise more Yuan and less Renmibi in circulation. That would
increase real value of the Chinese Currency. It seems logical that the domestic
value of a currency should also appreciate in the long-run and not like the way
it is executed in the real life. We choose higher redenomination when we should
go down, I mean lower denomination. We are progressing therefore value of money
must also increase…
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