China keeps getting bad-mouthed this year.
Obviously to some, the reason why their trade surplus with the US can be easily explained by the "fact" that China is not playing by the rules. They are manipulating their currency.
How? By having the exchange rate fixed to the US dollar!
Does this make sense to you?
To me, it doesn't. By having a fixed exchange rate for all these years, China has explicitely given up any control over its currency's exhange rate. So how could it be manipulating it? Who is manipulating the currency?
Oh, that is a different question, with a very different answer!
The US Federal reserve has been debasing the US dollar almost consistantly since its creation. So has other central banks, some have done it more than others. Basically, it's a global dance, with every one inflating their debts and obligations away, and thus exchange rates fluctuate according to everyone's actions.
One way the US might want to use to lower the trade deficit might be to have its currency drop versus the other country. This often has an effect of encouraging exports (which are now cheaper to other countries) and discourage imports (which are now more expensive to US consumers).
Two problems with this: the US dollar can drop as much as it wants, if the Chinese renmibi is pegged to it, it won't change a thing! How unfair, the chinese will not let the US manipulate its currency as it wishes.
Problem number two: even if it worked, how much effect would it have? The chinese advantage is not one of currencies. It is simply that its workers are paid twenty times less than North American ones!
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