Sorting Out China’s Currency Move
Posted June 24, 2010 at 3:00 pm, in From Campaign for America's Future
Dave Johnson
By Dave Johnson
Fellow with Campaign for America’s Future
Over the weekend China announced a change in its currency policy. But is it for real? Or is it designed to head off Congressional action?
So far China has pulled away the football. Their Central Bank was buying up dollars as usual to keep the currency from rising. WSJ: China Central Bank Tames Yuan Appreciation Hopes,
The Chinese yuan weakened against the dollar Tuesday, erasing most of Monday’s sharp gains and reflecting an apparent effort by the central bank to tame hopes of yuan appreciation and send a message that China’s exchange-rate reform doesn’t mean a guaranteed one-way bet on its currency.
. . . Traders Tuesday said they saw signs that state-owned banks were buying dollars, in what was interpreted as a push at the behest of China’s central bank to push down the yuan’s value.
Robert Reich says the currency announcement is “Hokum,” designed to head off Congressional action
China isn’t really changing anything. It’s only doing the minimum to prevent Congress from listing China as a currency manipulator, leading to a squeeze on Chinese imports.
Over time – and I’m talking about months if not years – China will raise its currency to where it was before the global meltdown in 2008. Big deal.
[. . .] While keeping the yuan artificially low is costly to China — it pushes up the prices of everything China imports — China is willing to bear these costs because its currency policy is really an industrial policy.
Scott Paul says it is a “Charade,” designed to head off Congressional action,
China would like nothing more than pressure from American lawmakers to disappear after its big announcement. Just over the past two weeks, Senators and Members of Congress of both parties have raised serious concerns over China’s currency policy and grilled the Obama Administration on their response.
. . . China’s currency will undoubtedly rise against the dollar, but the change may not be significant or fast enough to put a real dent in our enormous trade deficit or boost our exports enough to create a considerable number of manufacturing jobs. As I said over the weekend: “I will believe it when I see it. Unless the move is rapid and significant, China’s announcement is nothing more than a cynical ploy ahead of the G-20 and in the wake of mounting congressional pressure. America’s workers and businesses still believe that a strong response from Congress is warranted.”
. . . Leading economists estimate that the yuan is undervalued by up to 40 percent. So, unless we see a 40 percent increase in the value of the yuan compared to the dollar over the coming weeks and months, we still have work to do. And even if the yuan does appreciate that much, we must make sure that other barriers to trade and jobs — China’s dumping, subsidies, and lax labor and environmental regulations — are addressed.
. . . So far, China’s announcement has been nothing but hot air.
It appears very much like China’s announcement was meant only to defer pressure from the upcoming G20 talks. And it looks like Congress i s not fooled: China’s Yuan News Doesn’t Deter US Lawmakers From Tariff Bill,
Brown called the policy shift “a drop in a huge bucket,” noting there was no way to know how rapidly China would let the yuan appreciate against the dollar, nor how much it would let the currency rise in value.
“We’ve seen China take actions like this before when the spotlight is on, and then revert back to old tricks,” Brown said Monday. Brown went on to say that Congress must take action on Chinese imports until the yuan rises to its fair-market value.
Unfortunately the Senate needs to proceed with the Graham-Schumer bill.
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This post was first published on Campaign for America’s Future blog.
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Johnson also is a fellow at the Commonweal Institute and a Senior Fellow at the Institute for the Renewal of the California Dream.
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Follow Dave Johnson on Twitter: www.twitter.com/dcjohnson
