Middot; Subagdo
Currency weapons rarely bring good results to the United States.Take a look at the unilateral decision of the President Nixon government in 1971 to cancel the US dollar internationally internationally exchanged gold. It is a key element of Nixon Shock, destroying the stability of the floating exchange rate, and led to the 1970s in the 1970s.Stagflation in the next few years.But this did not prevents the President Trump administration (wrong) labeling the country's currency manipulation country.
For a long time, the United States has accused Chinese accused Chinese from low to lower the RMB exchange rate to obtain unfair advantages in international trade.However, the United States has not taken severe action, and until the recent decision, it has not used the labels of the currency manipulating country since 1994.
Even in the middle of 2000, when people generally believed that the renminbi was seriously undervalued, the U.S. President's Bush government chose to close his eyes, but sought bilateral strategic economic dialogue on currency and other economic issues.
However, the RMB has recently fallen below the important psychological barrier of 7 yuan against $ 1, which is the first time since 2008, making the Trump administration unacceptable.Therefore, as a symbolic move of the U.S. trade war in China, the US Department of Finance officially announced that China is a currency manipulation country.
However, whether this label is not so obvious.If the currency authorities of a country are intervened to promote the depreciation of the currency to improve the global competitiveness of its export products, it will be identified as a currency manipulation country.But the recent depreciation of the renminbi is not the result of policy actions.
Today, China has maintained a management floating exchange rate mechanism: the value of the RMB can fluctuate freely within 2%.However, because the currency authorities re -adjust the exchange rate every day, long -term weakness will gradually decline the exchange rate, even if the volatility is small daily.This is what happened earlier this month.
In fact, not only did the People's Bank of China not intervene in the devaluation of the RMB, but in recent years, foreign exchange reserves have been used to support the RMB.The difference this time is that it chooses no longer intervention and allows RMB to fall.
The reason why this decision is likely is probably because China has always wanted to make the RMB a major international currency with strong liquidity and wide acceptance.Chinese leaders know that frequent market interventions will weaken the reputation of RMB in the hearts of non -resident holders.In addition, these intervention costs are high.From 2015 to 2016, in order to support RMB, China consumed about $ 1 trillion foreign exchange reserves.
This is not to say that China will not further intervene.After all, weak RMB is a major problem facing China, and the Trump administration does not seem to see this.On the one hand, the softness of RMB will increase import costs, which is not conducive to domestic demand that China is very eager to boost.This is part of the strategy of China's growth model from exit to domestic demand.
In addition, when China's total debt is 300%of the GDP (GDP), weak RMB may trigger capital outflow.In contrast, a stronger and more stable RMB will reduce the debt risks of Chinese enterprises and provincial governments without endangering financial stability.
Therefore, if the renminbi depreciates sharply, the People's Bank of China may intervene.But it will act according to its own conditions, rather than to achieve specific goals, let alone please the United States (despite this, the United States will still benefit from it).For the United States, which has been destroyed by the Trump trade war, any growth boosted after the Federal Reserve rate cuts.
However, even if China's intervention aims to curb the devaluation of the RMB, the Trump administration may still use these interventions to prove that China is listed as the rationality of the currency manipulation country.This shows the dilemma caused by Trump to other countries in the world.The Trump administration has regarded international trade as a zero -sum game that formulates rules and winners, which has weakened the driving force for policy cooperation in various countries. Since World War II, this policy cooperation has been a sign of international economic order.Why do China give in the United States, which is a economic enemy?
Indeed, it is unclear whether the US Treasury Department has promoted the formal procedure for China (under normal circumstances, this will involve the International Monetary Fund), which is usually the follow -up action that officially accuses currency manipulation.However, the Trump administration has a lot of loud threats, and then retreats (boasting to avoid disaster) historical records.
However, by upgrading tensions and exacerbating uncertainty, Trump's reckless posture may have serious consequences, even if he did not threaten it to the end.As the global economic slowdown, this is a risk that anyone is unwilling to take.
Author Paola Subacchi is a professor of international economics at the Global Economics Research Institute of Queen Mary of London. The coin of the people: how China builds the world monet (how China is Building a Global Currency)
English Title: Trumps Manipuration of Currency Manipour
Copyright: Project Syndicate, 2019
