Signalling Game: China and US

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I continue to address audiences in Dubai, Singapore and Shanghai on applying gametheory concepts to the international crisis…

Continuing the argument provided in the Financial Times letter, the signalling game between China and the US on the role of the US dollar in international markets is considered as a template for analysis.


If it is unlikely that China moves first on its exchange rate to revalue to allow more imports and help in the fight to control domestic inflation then will the US move on a real depreciation of the US dollar to realise a long-term economic growth through a reliance on export growth. Who will prevail as the US needs to export more and China needs to fight inflation? It may require a G20 initiative on managing exchange rates as global imbalances continue to hamper a world economic recovery.

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