While we’re on the subject of Yuan pegs, here’s a radical proposal from David P. Goldman and McGill professor Reuven Brenner: The US should link its currency to the Yuan, under the condition that the Chinese let the Yuan float freely.
We’re still trying to wrap our heads around this idea — and we can’t imagine it happening, because if nothing else, those who associate a strong dollar with patriotism would find it ghastly — but we’re intrigued.
Here’s the nut of their proposal from Canada’s The National Post:
Rather than exporting and saving, America is vacuuming capital out of the rest of the world and going further into debt. Once we exclude the option of admitting a few million skilled, entrepreneurial young immigrants — as Israel did from Russia two decades ago — the present crisis can be solved only by opening the world to American exports and restructuring the American economy to create the necessary export capacity.
The greatest crisis the present administration faces is the collapse of the dollar and its role as the world’s main reserve currency. Paradoxically, preventing the dollar’s collapse also represents a once-in-a-century opportunity for American leadership. U.S. fiscal and monetary policies degrade the dollar’s value and force part of the burden of financing a misguided fiscal stimulus on America’s trading partners.
The United States should instead establish a fixed parity for the dollar with the currencies of its largest trading partners, starting with China. By stabilizing the dollar against the renminbi and, eventually, other currencies, the United States can create a shield behind which the capital markets of developing countries could flourish and capital continue to flow to the United States.