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Eurasia Group Analyst Nicholas Consonery on how the Chinese currency deal with Japan will impact the U.S. dollar and economy.
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Well China makes a currency deal with Japan this -- -- in the hopes of giving them a more prominent role in international trade but.
Left out of the -- The US dollar at the same time -- act composite index closed the lowest level since march of 2009.
What does all this mean for the US economy Nicholas comes honoree Eurasia group analyst -- out answer that exact question this deal in -- on Christmas Day.
And this deal basically cuts out the middleman which was the US dollar does -- hurt us.
-- I think it's a meaningful agreement diplomatically for Japan.
I very clear that China has an interest in spreading the international use of this currency.
But I think if you look at the details of what the two countries agree to it's not really very substantive agreement and the and -- basically keep in mind trade between China and Japan right now.
It's more than 60% of that is denominated in US dollars.
I think that numbers contains only very slowly.
And so I think you know what when you look at this issue I think it's it's a big diplomatic victory.
Meaningful for Japan but financially not gonna have -- again.
This could be -- but -- this could be very meaningful for China must assure that that's a good thing for united states of our economy for our companies because.
Basically the Japanese have agreed to hold.
You want -- -- -- -- time my I heard the US dollar was the reserve currency did your of the world is that is that changing do you think.
Right I mean that the agreement specifically was that Japan would hold about 1% of its foreign exchange reserves and in Chinese yen sell.
I mean I I agree with you that this the long term this is an important story but I think there's a real restriction on how quickly this is gonna move.
And the restriction is is that the Chinese Government basically is made it very clear that they're not really interest in and pursuing very aggressive financial or currency reforms domestically right now.
And until they do that I think the spread of of the Chinese renminbi internationally is actually going to be pretty slow.
What us talk about some of the problems that China has because that obviously is gonna affect our markets to -- nevermind the fact that the stock market.
In particular hitting a two month low if you look at at two year low excuse me was Shanghai.
But they've got they've got a housing bubble -- basically in effect they've got worries about inflation.
They themselves have taken on a lot of debts of -- has a lot of issues basically.
That could hurt them and that could slow down growth.
Do you think that we're gonna see -- -- -- 12% growth predictor for 2012 from China meeting that's even possible.
Now I don't I -- keep in mind -- the economy is headed actually in and slower traction right mean we -- ten plus percent in 2010.
We're looking at somewhere near 9% in in 2011.
And the government's estimate for 2012 is that they're gonna be close to -- to eight and a half percent.
I think the big question for next year is how quickly Beijing decides to basically adjusts.
Their monetary and economic policies to be more conducive to growth try to encourage.
Work rapid economic growth and China because we're at the end of the year where the government is actually.
Been trying intentionally to slow its own economy so that's the big policy shift next year.
Is that those we'll start to turn in the government starts to get a little bit more concerned about slowing growth and then they start to do some things on the policy side.
That are more conducive to growth somebody that's that that's what we expect the -- Next year well I have to say necklace I mean the question -- and it's still the question mark is is how.
Much can we trust the data that comes out of the Chinese Government and that's what we're just that we just don't know we can't possibly know.
But the United States and Europe -- -- diocese.
We are still their biggest target exporter they still depend -- middle class can basically thank the United States aware they are at today.
If the US does not grow China has to come -- come clean this agreement with Japan may make that a possibility.
Does that mean that we're filing gonna get the veil and lifted from the Chinese economy gets liberal answers.
I think the real question about.
You know growth dependency in in China is.
Is basically one of how quickly that the Chinese leadership can engineer and -- readjustment to growth in China.
Away from something that is totally reliant on the global economy for growth and keep in mind Japan is this -- -- China's third largest trading partners and they're not a small player here.
And -- and and to something that is more internally.
Dependent right I mean that's the government's intention right now is basically to have Chinese people.
Spend more money and for that to play a bigger role in economic growth and China they've got this twelfth five year plan which is their target for accomplishing that over the next five years.
-- I will see I think it's gonna again move very slowly and and I think you're right that China we're still talking about an economy that is in large part dependent on the global economy for.
Thanks from.
