My televised defense of Chinese currency manipulators
At the request of Chunglee Wang, here's the text of my commentary (they ran the long version) on PBS's Nightly Business Report Monday night:
You hear a lot of complaints these days from Capitol Hill and parts of corporate America that China is manipulating its currency to keep it from rising against the dollar. As a matter of fact, China is manipulating its currency to keep it from rising against the dollar. But what's so horrible about that?
Deciding how to run your currency is one of the things that national sovereignty is all about. The United States Treasury has manipulated the dollar again and again, most recently in 2000. The European common currency, the euro, is the product of a vast currency manipulation. And the Chinese currency peg of about eight yuan to the dollar was, for most of its history, accepted and even praised by the U.S.
The reason China linked its currency to the dollar back in 1995 was to bring stability to a growing but volatile economy. It succeeded. During the Asian currency crisis of 1997 and 1998, China's decision to hold on to its dollar peg even as it made Chinese products more expensive and less competitive was hailed by some as having saved the global economy. Now China can look back upon 12 years of mostly inflation-free, mostly uninterrupted growth--so much growth that the yuan-dollar exchange ratio has gotten out of whack, and could probably use adjusting. China's government wants to do that adjusting slowly, as it has been doing since 2005, and not on terms set by the U.S. Congress. Can you blame it?
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1
Jay, do you really think the Chinese WANT to make the adjustment, even slowly?
With the massive amount of dollars at their disposal, the have no need to worry about the purchasing power of the yuan in the international marketplace. Anything they want to buy, they can buy with their surfeit of dollars, and adjustments probably result in a decline of the dollar against most other currencies as well -- literally making everything more expensive for them.
(I suspect that the Chinese won't make any changes until after the Olympics -- and make everything that is sold pursuant to the olympics purchaseble in dollars, and make foreigners use dollars to make purchases. It would be a neat way of slightly increasing the diversity of their reserves portfolio, wouldn't it?)
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2
There's the complaining in Washington about China manipulating it's currency and that's the story? Politicoes don't want you to know that China, along with Japan and South Korea are buying huge portions of America's debt. Soon they'll be manipulating ours.
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3
What's so wrong with a nation exercising its national sovereignty by manipulating its currency?
Nothing!
And by the same token there's nothing wrong with the importing nation exercising its national sovereignty by slapping an excise tax (say, 20%) on all imports from the nation that does so.
Sauce for goose . . . .
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