Pravda

All Pravda publications concerning the switch to free-floating currencies are nothing short of supportive and optimistic. For example, in examining its own Russian economic structure, Pravda quotes First Deputy Chairman of Russia's Central Bank Oleg Vyugin: "Within several years, we need to smoothly switch to the floating exchange rate system and estimate the national currency more effectively. Strengthening of the national currency stimulates more investments in the country," Moving beyond reporting on the possibility of a free-floating currency within its own national borders, Pravda has published several articles denouncing the Chinese Central Bank's plans to return to a fixed rate.

Pravda has consistently sided with the United States in declaring the Chinese yuan as underestimated by 40%. Articles cover the U.S. intentions of punishing China should they decide to establish a fixed rate. The weaker the yuan, the more cheap Chinese products would flow in global markets. The U.S. opinion is that a strong yuan would only yield positive effects for the international economy. Despite the "claimed requirements" of the US administration, the Chinese Central Bank's plans do not coincide, as their strict yuan has helped the Chinese economy grow by more than 9% in 2005.

Although the Chinese Bank promised a revaluation of some sort, its decision to strengthen the yuan by a mere 2.11% is considered laughable by Pravda reporters, as we believe it was simply a political stunt intended to silence, at least temporarily, the pleas of developed nations. The "generous" revaluation was followed by a declaration by Chinese officials that actual financial policy would not be altered. In short, the so-called "revaluation" will have little to no effect on China's trade deficit. This 2.11% (within a .3% fluctuating range) is too small to hold the necessary cut into the Chinese export earnings. In addition to analyzing how effective the revaluation will have on Chinese exports, it is also key to be on the lookout for how it will change the value of the dollar and U.S. bonds. China's strictly managed yuan has long had adverse effects on U.S. bonds, as China is the second largest holder of Treasury securities, "with $243.5 billion of U.S. government securities as of May 2005." The consequences of the underestimated yuan include bond prices falling and yields experiencing a massive increase.

Unfortunately, Chinese analysts claim that the Chinese exporters will remain lucrative and competitive even should the yuan grow. If the yuan appreciated by 25%, for example, Chinese business would hardly feel the effect. Chinese firms hold the upper hand, not only because of cheap