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Currency War between China and the West

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“Currency War” is the term coined by the IMF managing director Dominique Strauss-Khan during the annual meetings of IMF and WB in Washington, D.C that began on October 8. The meetings will be concluded on October 10. Mr. Strauss Khan latter backed down from his comment saying “war was probably too strong a word.”

Yuan policyTensions on Rise

Tensions have been rising over China’s Yuan policy ever since the US President depicted China as “currency manipulator,” during his earlier days in office. Western countries along with some emerging economies are of the view that China is deliberately manipulating Yuan’s value not allowing it to appreciate. They opine, China is following various means to keep Yuan value low, like buying dollars and other forex currencies, pegging it to the dollar etc… IMF managing director also shares this view and called several times on China to allow Yuan to appreciate to correct global economic and trade imbalances.

Not Fair

Lower Yuan value is making Chinese products more competitive in the global trade, due to which China is able to amass trade surplus in hundreds of billions of dollars, according to the developed economies. China disagrees with the west’s contention and says that it is not responsible for the problems faced by the Western countries. China says the developed countries have many problems created by themselves that require immediate attention. It is not fair for the west to attack Chinese Yuan Policy without reforming their financial regulatory laws, due to which the western states are not in a position to control the “too-big-to-fail” (or “too-important-to-fail” according to the IMF) financial conglomerates, China says.

Admiting

However, many western analysts including Dominique Strauss-Khan admit that nobody thought a currency reform would be a “silver bullet” that would fix all the problems. The US and others need to take their own steps to save more. The IMF semi-annual “Global Financial Stability Report” released in first week of October 2010 said that the western countries are lagging behind implementing financial regulatory measures, agreed two years back in G20 conference. The US law of financial reforms has been modified several times as a result of lobbying by the financial giants.

The US as well as the IMF admits that the undervalued-Yuan is only a part of the problem faced by the west. It seems the problem is that the west wants to start from the Yuan appreciation, which is not actually in their hands but do not want to start from enactment of financial regulation laws and their strict implementation, which is certainly in their hand. Therefore, the developed economies should first move themselves by enacting financial regulation to curb the risky business practices of financial companies, to prevent producing complex derivatives that are becoming toxic waste during the financial crises. These measures were enshrined in the agreements and communiqués reached in G20 conferences held after the eruption of financial crisis, but no country in the west is bothered to implement them in the same spirit as they were agreed upon.

China Problems

China is basically a developing country or as it is being termed recently, an emerging economy. It’s per-capita income is lower that of the several crisis ridden European countries including Greece. So it has its own reasons while telling that they would follow their own way in forming their monetary policies, and they would decide what is good their country. They are of the fear that the drastic appreciation of Yuan value would mean a shock therapy, which China cannot withstand. They opine that would jeopardise the economic growth of China, which could act as setback to the global economy itself.

In this scenario, the China is firm on its Yuan policy of gradual appreciation of Yuan value instead of in leaps of steps. China also accused the developed nations that the enormous bailout packages paid to failed banks have resulted in multiplication of their national and international debt, which in turn caused debt crisis and losing confidence among market players on their capacity of repayment of debts. China also accused them of keeping their interest values almost near to zero, which again is adding to the economic woes of the developed countries.

Save Less, Spend More -IMF

China is asking the west to reform first their home instead of relying on its Yuan policy. IMF director is asking China to strengthen its domestic market so as to make it less dependent on exports. He opines the emerging economies save more and spend less depriving of market for West’s consumer goods. So he is asking the people of the emerging countries to save less and spend more so that Western countries may find buyers for whatever they produce irrespective of the needs of the people. They produce refrigerators, washing machines, plasma TVs, iPads, and sophisticated furniture and so on. And, the people of emerging countries have to buy them without going for savings for future necessities, even if they don’t need them.

US advice

A former economic advisor to President Obama Christian Romer provides more specific example for emerging countries’ governments to make the West more wealthy. She says, “China should put in place a healthcare system, so that people save less – because they wouldn’t have to worry about paying for treatment. They would then buy more products from the rest of the world.” So, Romer is ready to propose developing economies to go against privatization policies, the very policies that were forced upon the third world by the GATT agreement and the WTO. Because, such steps would benefit the US companies.

The bottom line is that the developing economies should strive to provide more opportunities for the US companies to amass profits at the cost of their own economies and people’s needs. The US administration people are advocating such shameless rot for the people of the third world openly.
Starting from trade imbalances and currency war, the US sponsored IMF wants ultimately to place the third world countries, their people and their economies at the altar of the imperialist greed. It is better for the international institutions sponsored by the west not to talk about human rights and the values of humanity.

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  • Luke

    I agree with everything here, China is a sovereign nation and should manipulate their currency any way they damn well please, China knows all too well what it’s like when we in the west control the terms of trade, (Opium wars anyone?) we need to worry about ourselves and not what the Chinese are doing.