What happens when currencies are not valued right?

Nwakego Eyisi

Understanding paper money

What does a dollar, Yen, Pound Sterling, Yuan and Euro mean?

Paper money is a reflection of the health of an economy, in other words it moves in the same direction with the economy it represents.

For instance when the right policies are made it attracts capital flows or foreign direct investment. Capital flows creates jobs and increases economic growth. It also means the country is richer. When this happens the national currency appreciates.

The exact opposite happens when bad policies are made, it leads to capital flight and a reduction in economic growth, (in other words the country is poorer) eventually the currency depreciates or loses value.

Usually when a country’s currency loses value it means that export oriented industries will do well (for countries that are productive) and vice versa when the currency appreciates. That is one reason governments (for export driven economies) intervene to keep (or peg) their currency at a certain level.

Currencies (Yuan, Yen, Dollar) and fundamentals

Does a rigged currency reflect the true state of these economies?

“China is a top destination for capital but has a currency that is grossly depreciated”

“The Yen should trade higher because of capital flows and the strength of the Japanese economy”

“The EURO (currently) does not reflect the fundamentals of a productive German economy”

“Brazil and South Africa’s currencies are probably too strong (overvalued) for their economies”

If the big players (China, USA and Japan) are manipulating their currencies it means there is a distorted picture of the health of these economies (and the global economy by extension).

For instance Japan flooding currency markets with cheap Yen to reduce its value might help export oriented (Toyota, Mazda, Honda) industries but what would it do to savings and consumption? what about asset bubbles and inflation?

It is the same argument for China, where the authorities has not allowed the Yuan to appreciate when the markets demands that it appreciates.

Restive capital and add ons from global recession

This does not bode well for capital. Even when capital moves to countries (Brazil, Switzerland) where it is guaranteed higher returns it still creates problems because it is not wholly market driven. That is why Brazil imposed taxes on capital flows because it hurt the economy.

In 2007/2008 countries around the world lowered interest rates to accommodate the recession. This tinkering of interest rates makes capital restive because capital typically moves to regions of higher returns. Let’s not forget that low-interest rates debases paper money because central banks inflate and flood the markets with cheap money when interest rates are lowered.

Add this to the current currency wars and it is easy to predict anemic growth going forward.

Leadership, Intangibles & Talent

Michael Folkman

Going through this quarter’s articles, blogs and research, the key word or theme for this quarter is “complexity” and in particular how organizations should be embracing what is inherently complex, rather than trying to simplify and standardize across the board. This desire to simplify can range from high-level decision-making to talent management, where in many cases things are not always as they seem.

We transcript a part of the articles, those who want access to all the articles please contact the author (he’s into the contact list) or visit his web page www.fourgroups.com

Engagement

Regular readers of this update will know that employee engagement has been flavour of the month in corporate boardrooms for some time now. It seems that organisations are waking up to the fact that engagement and the willingness to go the extra mile in terms of discretionary effort is not necessarily down to pay and benefits but a far more complex and intangible set of criteria that require specific insight and understanding of culture, relationships and values. Given the number of conferences and seminars on offer covering engagement it appears that there is a cottage industry developing to guide senior executives through this tricky area.

However, with engagement unlike some areas of corporate development, teaching executives about how to engage their people suffers from a number of inherent difficulties. Firstly, can something as naturally intangible as engagement be taught in a systematic manner? Secondly, do organizations and more specifically, senior executives actually want engagement given the change in outlook and culture it will require? Michael Specht lists five criteria for successful engagement:

• Involvement in decision making

• Feel they are able to voice their ideas, & managers listen to these views

• Have line of sight between employee performance & company performance

• They have career development

• When the organization is concerned for employees’ health & wellbeing

To this I would also add strategic and e case for improved engagement is something all organizations are striving for? Well, I’m not convinced that many are willing or able to undertake the necessary changes in outlook and culture to achieve this. Digging a little deeper it appears that pursuing engagement as a key strategy in boosting performance is going to require change or a reversal in corporate attitudes that many executives may find too unpalatable or difficult to achieve even if they wanted to.

By looking a little closer we can actually start to understand what an organization would look like if it were to really focus on cultivating engagement as a key value. To start off with one of the main requirements of engagement is to give people autonomy or control over their role and an active say in decision-making. This came up in a provocative blog post by Paul Gillin5 entitled Gain Control by Giving it Up, where he talks about a new book called Open Leadership by Charlene Li6. In her book Li puts forward the notion that the traditional model of focusing hierarchical reporting and concentrating decision making and influence in the hands of a few senior executives is damaging to organisational performance. This is not a new idea but on this evidence I think Li makes a very strong argument. “Open Leadership will make a lot of people uncomfortable because it proposes that the only way to govern effectively in a transparent business world is to give up control and trust people to do the right thing.” “Li asserts that today’s business world is too complex and competitive to permit organizations to continue to manage the way they have since the Industrial Revolution. That top-down philosophy assumes that people are idiots who can’t accomplish tasks without instructions, rigid rules and constant oversight.”

“New business leaders set examples, demonstrate confidence and create cultures that tolerate intelligent, wellintentioned failure.” Li is not alone in her views on the damaging nature of traditional organisational structure, these are reflected in an excellent blog post by Gary Hamel7 in the Wall Street Journal. “I believe that many of the tools and methods we use to manage people at work are ill-suited to the challenges of succeeding in today’s “creative economy.” All too often, legacy management practices reflexively perpetuate the past—by over-weighting the views of long-tenured executives, by valuing conformance more highly than creativity and by turning tired industry nostrums into sacred truths.” “We should remind ourselves that dogma often masquerades as truth, and that we are often comforted by the deception. There are many who would prefer a lazy ramble along the gentle contours of the tried-and-true then a hard scramble up the rocky incline of the untested and unproven.” Hamel goes on to cite HCL Technologies CEO Vineet Nayer as someone who has successfully managed to “invert the pyramid” and empower employees so that they are at the heart of the organisation. “We must destroy the concept of the CEO. The notion of the ‘visionary,’ the ‘captain of the ship’ is bankrupt. We are telling the employee, ‘You are more important than your manager.’ Value gets created between the employee and the customer, and management’s job is to enable innovation at that interface. To do this, we must kill command-and-control.” This same view of challenging the traditional role of leaders is echoed in a Financial Times article by John Kay8: “Domineering chief executives often fill their boards with cheerleaders, and rarely seek sceptical counsel. An army of professional advisers can hardly wait to get its hands on fees. The independence of equity analysts is compromised by their association with deal making banks. Both analysts and journalists find their access depends on good relations with the businesses they cover. Many of the worst deals were widely applauded when announced. The modern cult of the heroic chief executive is at the root of the problem.” To underline the need for radical change in the role of organizational leaders, Gary Woodill9 argues that traditional management of activities such as strategic reviews, long-term business planning and centralized setting of objectives is a waste of time. “What is interesting is that new methods have been developed in providing companies foresight, at least for a few years. But most strategic planning is an extension of the past.” Giving up what we have long held to be productive and positive is something that Jeff Sutherland blogged about10: “Study after study at MIT and around the world show that incentive bonuses cause people to perform worse if they have to do any thinking in their job. (Hopefully, that is most of us.) Of course, all the research shows performance appraisals demotivate people but we still hand out performance appraisals thinking that will help employees improve performance proving that much of what we think and do is fundamentally flawed.” In her book Li argues that decentralizing power is an inevitable change that organizations are going to have to make. I think that many organizations or those leading them run a mile from this concept and most organizations are currently moving in the opposite direction. Advances in technology and the recession have meant that organizations are monitoring and looking to standardize their employee’s activities on a greater scale than ever. With greater monitoring and the unsuitability of traditional organizational command and control, mediocrity is perpetuated and people are forced to take a narrow view of their role in the organization. A blog post by Johnnie Moore discusses the idea of “closing the field”: “services get analyzed by experts and chopped into smaller functional units. Front and back offices are created; some back office functions then get outsourced. Each unit is given its own performance targets. For example, a call centre operator has to clear 60 calls a day. Inevitably, everyone learns to game the system; one way to deal with lots of calls is to cut people off or pass them along - leading to even more calls later etc etc.” In short, what is required is not a new strategy to focus on engagement but a new organizational culture that places engagement at its heart to highlight the difficulties in effecting cultural change, Gautam Ghosh12 highlights a video entitled “Culture eats Strategy for Lunch”. The reality is that the vast majorities of organizations have a culture or organizational structure that suits the command and control indset. Advances in technology have meant that it is becoming easier and easier to micro manage and standardize procedure to the nth degree. The upshot of this is that it actively disengages people from their role and perpetuates poor performance. My feeling is that faced with the choice of giving up control and influence or maintaining the status quo the vast majority of modern executives will go for the latter. Part of this is inevitably down to the herd mentality. As with bonus culture, the negative effect on performance is well acknowledged. The reason cited by executives however for sticking with bonus culture is that everyone else is doing it. It will take a brave leadership team to abandon the traditional command and control mindset. This does not mean engagement will not continue to feature heavily in discussions and in seminars and conferences. Enterprises will still continue to roll-out annual engagement surveys and I suspect many organizations will be on the hunt for marginal increases in engagement, if it means the culture stays the same.

RESOURCES: OWNERSHIP & ALLOCATION

Amer N. Raja

Definition of Resources:

Resource can be defined as anything that can be employed to satisfy human needs and wants. As the aim of all economic activity is to satisfy some human needs or wants and so because of their ability to fulfill that function, resource is of utmost importance in Economics and other Social Sciences. Therefore, for satisfying human needs and wants, resources (material) like water, land, animals, oil, etc are required and by employing human labor and organization on the natural resources we produce other products either naturally (like fruits, vegetables, cattle/fish farming, golf course etc.) or by employing knowledge (science and technology) we produce many other products and services (cars, electronics, hospitality advertising etc).

Types of Resources:

As per our definition of resources, all things that can satisfy some human need or want are a resource. Air and overall habitable planet is a must for very fundamental human need to breathe and live. This fundamental resource has never been taxed by human for it is beyond their power to control as well as available in plenty. There are other resources like land, labor (with varied intelligence), water, animals, minerals etc known as natural resources which are limited and their human ownership varies from society to society and from time to time. The value added resources are those which have been derived by applying human skill and knowledge on combination of other natural resources. The examples consist of simple table to money and to machines like cart and motorcar.

Ownership of Resources

Ownership is a major problem concerning all human activities. It will not be an exaggeration to say that ownership of the resources is the main problem. There are few wars that are fought on the basis of principle but for the aggressive party in general there is some hidden motives to gain ownership over resources and through this impose their own agenda.

There is a fundamental principle in Economics which is - TINSTAFL - an acronym of "There is no such thing as free lunch". In other words, according to Economics nothing is free. What about the natural resources: air, land, labor etc? What are their costs? Who primarily own them? The Creator or they are just as it is? This definitely lead us to consult the other branches of knowledge theology, anthropology etc.

In the very beginning when there were no such issues of over population and political or national borders, how the ownership of resources among human was determined? Originally the own-able resources supposedly would have been owned by family head and allocated as per his discretion or if some of the family member does not agree he may leave alone or most probably with his own supporters. At that time conflict might have existed because of jealousy, anger, greed, arrogance or such other factors. However, our concern here is not to find the causes of war but to determine ownership of resources. Yet battles are fought to gain power over one's own tribe or neighboring tribes that eventually can determine ownership of resources. The other view is that they (populace) signed some social contract through which a governing team was formed and they also were responsible for allocation of resources. This vague social contract concept is the foundation of modern nation states. In other instances, some religious code might have been the determining factor in appointment of governing team and allocation of resources.

Ownership in case of idea – Someone discovered the cure for a disease, let’s say cancer, who will own the idea? Once inventions/discoveries are made, they can become a great profitable resource. Their ownership cannot be fully controlled, either it is propagated voluntarily or others somehow copy or independently discover it. Whoever uses that discovery/invention is entitled to own the idea.

Ownership in case of uncultivated/abandoned land – Who owns the land, owns the material from it. Generally, it is the government, rulers or conquerors do so?

ALLOCATION OF RESOURCES:

The next issue is the transfer of the ownership or resources. We do not live in a stationary world and also all resources are not fixed. Primarily land is a fixed resource but by applying skills and technology on land we can enormously increase the output from land in the form of vegetable, fruits, cotton, multi-storey construction etc. The ownership of the products remains the entity of the producer or owner of the land till it is not sold. In practice, the excess output is sold in the market and through exchange the ownership title changes from seller to buyer. Also the labor/experts sell their services to the buyer. In these cases, price mechanism (supply and demand determines price of a product/service) determine the allocation of resources. The seller sells their product or service in exchange of cash to the buyer that changes the ownership of the product as well as service (for a limited time). This also applies to industrial production along with livestock and other businesses. Inheritance, gift and charity are other methods through which ownership or resources can be changed. Then, government or rulers also give the ownership of resources to some individuals.

Other ways in which ownership of resources changes that however theoretically unapproved are stealing, robbery, coercion and capturing the produce, service or land.

Case: Ownership on Moon. It will be a good case to study that how ownership can be determined on the moon. Ultimately, it is owned by the Creator. Now, is it acceptable that whoever, reaches their first owns the moon or anyone who can reach their can own the piece or the one who has first reached there, prevents other and battles are fought and winners owns the space on moon. If someone has the other resources like capital, spaceship etc and wants to offer a visit to the moon open as a tour operator and own a resort there, does he/she need some permission, if so why?

Stephen Hawking On Our Place In The Universe

Stephen Hawking, the famous professor from the University of Cambridge and Leonard Mlodinow, a physicist from Caltech recently wrote "The Grand Design". It is to be published tomorrow. Below you can read an adaptation from this book for the Wall Street Journal. The article was published in the WSJ under the title "Why God Did Not Create the Universe: There is a sound scientific explanation for the making of our world — no gods required".

The piece is fascinating on a scientific level but also as a reminder that our place in the universe is rather small and the result of a series of coincidence. Could we just disappear? The universe would survive but without us. Try imagining that. If a tree falls in the forest and nobody is there to hear it tumble, has it really made noise? If the universe exists without humans, does it reallly exist?

If you ask me why is this relevant for the market, I'll respond, once again, that it is an exercise in thinking out of the box. Investors who really make money and can avoid big disasters are out of the box thinkers. This allows them to better identify paradigm shifts before they occur.

Please read the Hawking article below:

"According to Viking mythology, eclipses occur when two wolves, Skoll and Hati, catch the sun or moon. At the onset of an eclipse people would make lots of noise, hoping to scare the wolves away. After some time, people must have noticed that the eclipses ended regardless of whether they ran around banging on pots.

"Ignorance of nature's ways led people in ancient times to postulate many myths in an effort to make sense of their world. But eventually, people turned to philosophy, that is, to the use of reason—with a good dose of intuition—to decipher their universe. Today we use reason, mathematics and experimental test—in other words, modern science.

"Albert Einstein said, "The most incomprehensible thing about the universe is that it is comprehensible." He meant that, unlike our homes on a bad day, the universe is not just a conglomeration of objects each going its own way. Everything in the universe follows laws, without exception.

"Newton believed that our strangely habitable solar system did not "arise out of chaos by the mere laws of nature." Instead, he maintained that the order in the universe was "created by God at first and conserved by him to this Day in the same state and condition." The discovery recently of the extreme fine-tuning of so many laws of nature could lead some back to the idea that this grand design is the work of some grand Designer. Yet the latest advances in cosmology explain why the laws of the universe seem tailor-made for humans, without the need for a benevolent creator.

"Many improbable occurrences conspired to create Earth's human-friendly design, and they would indeed be puzzling if ours were the only solar system in the universe. But today we know of hundreds of other solar systems, and few doubt that there exist countless more among the billions of stars in our galaxy. Planets of all sorts exist, and obviously, when the beings on a planet that supports life examine the world around them, they are bound to find that their environment satisfies the conditions they require to exist.

"It is possible to turn that last statement into a scientific principle: The fact of our being restricts the characteristics of the kind of environment in which we find ourselves. For example, if we did not know the distance from the Earth to the sun, the fact that beings like us exist would allow us to put bounds on how small or great the Earth-sun separation could be. We need liquid water to exist, and if the Earth were too close, it would all boil off; if it were too far, it would freeze. That principle is called the "weak" anthropic principle.

"The weak anthropic principle is not very controversial. But there is a stronger form that is regarded with disdain among some physicists. The strong anthropic principle suggests that the fact that we exist imposes constraints, not just on our environment, but on the possible form and content of the laws of nature themselves.

"The idea arose because it is not only the peculiar characteristics of our solar system that seem oddly conducive to the development of human life, but also the characteristics of our entire universe—and its laws. They appear to have a design that is both tailor-made to support us and, if we are to exist, leaves little room for alteration. That is much more difficult to explain.

"The tale of how the primordial universe of hydrogen, helium and a bit of lithium evolved to a universe harboring at least one world with intelligent life like us is a tale of many chapters. The forces of nature had to be such that heavier elements—especially carbon—could be produced from the primordial elements, and remain stable for at least billions of years. Those heavy elements were formed in the furnaces we call stars, so the forces first had to allow stars and galaxies to form. Those in turn grew from the seeds of tiny inhomogeneities in the early universe.

"Even all that is not enough: The dynamics of the stars had to be such that some would eventually explode, precisely in a way that could disperse the heavier elements through space. In addition, the laws of nature had to dictate that those remnants could recondense into a new generation of stars, these surrounded by planets incorporating the newly formed heavy elements.

"By examining the model universes we generate when the theories of physics are altered in certain ways, one can study the effect of changes to physical law in a methodical manner. Such calculations show that a change of as little as 0.5% in the strength of the strong nuclear force, or 4% in the electric force, would destroy either nearly all carbon or all oxygen in every star, and hence the possibility of life as we know it. Also, most of the fundamental constants appearing in our theories appear fine-tuned in the sense that if they were altered by only modest amounts, the universe would be qualitatively different, and in many cases unsuitable for the development of life. For example, if protons were 0.2% heavier, they would decay into neutrons, destabilizing atoms.

"If one assumes that a few hundred million years in stable orbit is necessary for planetary life to evolve, the number of space dimensions is also fixed by our existence. That is because, according to the laws of gravity, it is only in three dimensions that stable elliptical orbits are possible. In any but three dimensions even a small disturbance, such as that produced by the pull of the other planets, would send a planet off its circular orbit, and cause it to spiral either into or away from the sun.

"The emergence of the complex structures capable of supporting intelligent observers seems to be very fragile. The laws of nature form a system that is extremely fine-tuned. What can we make of these coincidences? Luck in the precise form and nature of fundamental physical law is a different kind of luck from the luck we find in environmental factors. It raises the natural question of why it is that way.

"Many people would like us to use these coincidences as evidence of the work of God. The idea that the universe was designed to accommodate mankind appears in theologies and mythologies dating from thousands of years ago. In Western culture the Old Testament contains the idea of providential design, but the traditional Christian viewpoint was also greatly influenced by Aristotle, who believed "in an intelligent natural world that functions according to some deliberate design."

"That is not the answer of modern science. As recent advances in cosmology suggest, the laws of gravity and quantum theory allow universes to appear spontaneously from nothing. Spontaneous creation is the reason there is something rather than nothing, why the universe exists, why we exist. It is not necessary to invoke God to light the blue touch paper and set the universe going.

"Our universe seems to be one of many, each with different laws. That multiverse idea is not a notion invented to account for the miracle of fine tuning. It is a consequence predicted by many theories in modern cosmology. If it is true it reduces the strong anthropic principle to the weak one, putting the fine tunings of physical law on the same footing as the environmental factors, for it means that our cosmic habitat—now the entire observable universe—is just one of many.

"Each universe has many possible histories and many possible states. Only a very few would allow creatures like us to exist. Although we are puny and insignificant on the scale of the cosmos, this makes us in a sense the lords of creation."

This post was originally published on the Sceptical Market Observer.

Looking For The Next Big Thing?

My son asked me the other day how does one become rich. Obviously, being 14, what he really wants to know is how to become rich without lifting a finger ... except to play Call of Duty. I told him that if I had bought him a few thousand shares of Apple when it was a few dollars a share less than a decade ago, he would have done well by any kid standards. Unfortunately, I only bought him a hundred share at $ 50. Not bad. But not enough to make him rich. I told him that if he had enough insights to identify the next big thing, he could probably make a killing but not to count on it to make a living.

If you are yourself looking for the net big thing, listen to this video recently found on TED.com. Right out of a Super Hero movie, Tan Le explains how a new form of remote control developed by Emotiv Systems uses brainwaves to control digital devices and digital media.It's not only the technology which seems unreal. Tan Le herself conveys the image that she is a science fiction character. She is not a representative of the organisation chosen for her ability to deliver a clear and concise presentation on a complex matter in flawless English. She actually is the co-founder and President of Emotiv Systems. A glimpse of the future? Young, Asian, Female and in total command of the English Language. You have to admit that she defies the stereotypical image of today's CFO. I was truly impressed.

Gems like this one are the reason why, even though I have been very pessimistic about the short-term outlook and the probability of a U.S. recovery in 201o, I am rather optimistic about the long term prospects of the human race.

This blog was originally posted on THE SCEPTICAL MARKET OBSERVER

Follow up On Housing

Guest Post by Keith Porter

I got several follow ups on my piece about Housing the other day.

Sheryl Owen kindly sent me the ABC's of Home Ownership, which I enjoyed, thank you.

Luc forwarded on this from an other LinkedIn member, John Weatherby: Comment on "The Sceptical Market Observer: Is home ownership the problem?"

"From the other side of the pond, I would have to say that there is a sentimentality to this. It may be similar in the UK. The US considers its roots as a farming nation. We still have not left the medieval mentality that power is tied to land. Therefore the more evenly land is distributed the more even power is distributed is still the thinking here. The United States still puts a higher social status on land ownership even in an economy that has been long removed from being driven from land rents.

"I really do not see an economical nor political reason in today's world for preferring land ownership over renting. We are far removed from the fief system. However, the fief mentality that land equates to power and status still exists. In the US those losing houses due to mortgage crisis are being billed as homeless. Politicians and citizens seem to think it is somehow horrible that these people might rent a home instead of own one. More renting might actually increase the ability of workers to move from job to job and decrease the natural rate of unemployment because fewer people are tied to a region because they have a house there that they presently can not sell.

"One thing that may be showing in the data, and I will note this is pure speculation, is a difference in attitudes possibly driving a difference in investment. In cultures that see less power in land it is possible investment is driven more toward productivity. In the US, there is a lot of financial investment in real estate. Much of that investment is not really productive. It is mostly a transfer of land and perhaps some wealth. Less social emphasis on land might allow more financial capital to flow to real capital and perhaps better growth rather than land speculation or the mere transfer of assets. The US government's emphasis in tax codes and encouragement of home ownership has no doubt distorted production and investment from some sectors into single family home production and financial investment."

And finally, This week's Economist also talks about the subject in the article.

This blog was originally posted on the Sceptical Market Observer.

Chinese Yuan and flexibility

Nwakego Eyisi

Chinese Yuan and flexibility

Chinese authorities announced plans on Saturday to make the exchange rate more flexible, while ruling out a large, one-off move in the Yuan’s value. China’s central bank says it plans to keep the Chinese Yuan “stable” and there will be no immediate revaluation of the currency says the BBC.

Stock markets from New York to London to Hong Kong reacted positively to the announcement.

Currencies were also up, with the Korean won and Malaysian ringgit both rising over 2% against the US dollar.

Background

China does not allow its currency to float but rather pegs the Yuan to the dollar which depreciates its value so that Chinese goods are cheaper and knocks out competitors on the international market. This has worked well for China’s export driven economy. China saves a lot so that the investment from savings primarily goes to support manufacturing and export while the remainder (savings) is exported to the US.

The US has consistently accused the Chinese of cheating and exacerbating the imbalances that has fed the global credit crunch. The US economy is driven by the consumption component of gross domestic product (GDP) while the Chinese economy is driven by the export component. High consumption in the US has fed Chinese exports and savings

Every country needs to consume, save/invest, export and import according to her resources as dictated by markets. China has not been consuming enough and the US has not been saving. This imbalance has fed the global recession.

The demise of the US consumer will hurt China in the short run. While the US, UK amongst others need to save more so they can be more productive and increase exports. Greater export is crucial for the US and Western Europe to escape their debt trap.

Global Expectations

What a flexible Chinese currency is expected to achieve is alter this export driven model. A flexible currency is expected to push up the value of the Yuan which will increase the price of Chinese goods abroad and reduce exports. This also means that the Chinese will have to save less and consume more. The expectation of the US and Europe is that a flexible Yuan will increase the price for Chinese goods – If China sells less the US sells more!

Short run implications

Allowing some flexibility for the Yuan might not cause it to appreciate but depreciate. This is because Chinese exports markets in Europe and the US is in a recession. Lack of demand will reduce investment in China and eventually exports. A reduction in exports will hurt the Chinese economy because it is primarily export driven so that the eventual outcome is a depreciation of the Yuan. A depreciation for the Yuan means that China will continue to out sell the US and other competitors (they are more productive anyways) even in this downturn

Long run implications

In the long run as China consumes more and saves less their economy will benefit from increased productivity and Beijing will allow the Yuan to appreciate a lot more as a result. Market forces will reallocate excess savings into more production to serve growing demand in China and elsewhere. This is a more efficient use of Chinese savings and will grow the Chinese and global economy, instead of the inefficient way (buying US debt) it has been utilized which has had a negative effect on the global economy.

Conclusion

In the short run, its more bad news for Washington and Brussels - a flexible Yuan will not boost US exports but hurt it.

Pressuring the Chinese to allow flexibility for the Yuan will only help China become the biggest economy in the world sooner than later