You do not need to be an economist to realise the U.S. Treasury's claim that China does not manipulate its currency is laughably false. The Chinese government and not the markets decide what the yuan is worth in terms of other currencies such as the US dollar. By doing this the communist government can keep Chinese wages at artificially low levels we cannot compete with in the west. What the Treasury should have said is that China is only doing what everyone else does. In fact she may be protecting us from even worse consequences of currency manipulation by our own governments.
Currency manipulation is nothing new. From as far back as people have trusted currencies issued by their rulers, the rulers have abused that trust. The Roman Emperors used to debase the currency by replacing silver with less precious metals.
The "inflation tax" is still one of the most common manipulations today. When governments print money to pay for unfunded spending all we notice is that prices are a little higher. Most people do not equate the fact that their money buys less with the reality that the government is taking more.
When the Bank of England was created in 1694, a one pound note bore the inscription "I promise to pay the bearer one pound [of sterling silver]". UK bank notes still have that inscription but are worth a fraction of 1% of that value. Such is the extent of this form of manipulation that even the once worthless copper is now worth more than the (US) pennies it is used in (British pennies are now made of steel and coated in copper). It's unlikely this will ever happen with paper money although since more than 99% of notes circulating in London contain cocaine, you never know.
After the Second World War, currency manipulation took on a new face. Politicians believed they and not markets should set the price of money for the good of society. Exchange rates were fixed, limits were set on how much money could be taken out of the country, and institutions such as the International Monetary Fund were set up to manage the world economy. This practice continued into the 1970s. In other words, we did exactly what the Chinese are now doing just 30 years ago and on a much more massive scale. In fact we never stopped; western nations are still currency manipulators.
Article comments
1 - mark richard adam
and you will never understand that.
2 - azminivanracer
interesting bit here.
while its interesting, you provide no hard facts as to what the government is doing to ACTUALLY manupulate the value of the currency. there is more to it than lying and saying its worth more. there are intracate pieces in play. the government (with the acception of the bush administration) thinks things through. "the government doesnt take a dump without a plan"
so while your piece was intriguing and interesting to read, im still not convinced (by you)
3 - stoneweapon
At some point we have to blame China for not reciprocating trade or blame ourselves for consuming more than we produce. If Chinese corporate and government sectors think they can get away without penalty; oppressing their own people for cheap labor and hoarding trillions of dollars worth in foreign currencies from their largest customers for the use of strategic natural resources instead of buying the goods and services that we can provide to benefit their people, then they are wrong. If the US cannot work off its debt, eventually the debt is printed to balance the trade. The devaluation of the USD is punishment to China for hoarding and not reciprocation trade, and it is punishment to the US for consuming more it produces.