At the prompting of the Federal Reserve Board’s semi-annual testimony to the House Finance Services Committee, US Treasury Secretary, John Snow, made an appeal to China’s central bank governor, Zhou Xiaochuan, to let the Yuan free float in the marketplace.

During the September, 2003 meeting, China felt the weight of the world on its shoulders to change the fixed currency rate of $1=8.28 Yuan.

What’s important is that China delayed making a decision on the Yuan. Secretary Snow will be meeting with finance ministers of the Asia-Pacific Economic Cooperation (APEC) forum. Korea and Japan have already expressed their desire to see the Yuan float freely. They want to gain back their export trade dominance.

Unfortunately, Secretary Snow has already been appeased by bank governor, Xiaochuan. Bank Governor Xiaochuan is making arrangements to make it easier for Chinese individuals and companies to buy American stocks and bonds. This in no way helps Korea or Japan increase exports.

This new scheme will quickly backfire. China is the world's sixth-largest economy, with record trade surpluses and foreign-currency holdings to rival Japan. By allowing China to repatriate its export wealth through American investments, instead of reducing exports by free floating the Yuan from the dollar, we will find ourselves in the exact same “buying” of America that occurred in the 80’s. At the time we convinced Japan to do the same thing.

Awash with capital, the stock market and the real estate market will most likely find themselves in a bubble that will rival the “dotcom” era, once the Yuan is free-floated all chaos will break loose. This is being done to avoid a small 10-15% increase in the Yuan’s value.