In any case, unlike South-East Asia it is no longer a base for manufacturing, which accounts for a mere 12% of the economy, but is increasingly reliant on service exports, which are much less sensitive to exchange rates.Moreover, speculating against the local dollar is extremely hard, thanks to the workings of its peg to the American dollar at the rigid rate of HK$7.80.
Much of the blame for the decline, the study shows, can be placed at the feet of managers -- who are failing to give workers clear feedback without the rigid rating system to help guide them.
This is because it exhibits exactly the sort of rigidities that have proved so damaging elsewhere in Asia: a rigid exchange rate, and a rigid political system.
If there is one clear lesson from history, it is that the combination of open financial markets and a rigid exchange rate is a disaster waiting to happen.
The key point, which I've finally taken fully on board, is that in addition to the huge problems of adjustment created by a rigid exchange rate in the aftermath of a bubble, the fact that European nations no longer have their own currencies leaves them vulnerable to self-fulfilling debt crises – in effect bank runs on governments rather than banks (although those too).
Disagreements over China's rigid exchange rate and signs of protectionism in both countries have exacerbated strains.In this section Not exactly eye to eye Walking between the raindrops Hitting where it hurts Restoration drama You couldn't make it up First Facebook, then the world Picking up the pieces ReprintsIn recent weeks China has been trying to show that it still values the relationship.
But as those rigid exchange rates require high interest rates, they impose a heavy penalty on growth.Partly for that reason, Mexico may be the big Latin country best-placed to ride out the turbulence.
The dollar peg has made it hard to curb inflation, especially in fast-growing oil economies, whereas a less rigid exchange-rate regime say, a peg with a basket of currencies may allow a more flexible interest-rate policy.
The distortions caused by today's rigid exchange-rate regime may themselves be the biggest threat to Chinese financial stability.
But banks' deposits at the PBOC are already much larger than the required ratio, so an increase does little to constrain their ability to lend.China's monetary policy is also constrained by its rigid exchange-rate regime.
Now is not the time to follow rigid interest-rate rules.Of course, we learned today that annual euro-zone consumer-price inflation was 2.4% in February, up from 2.3% in January (and above the ECB's target).
