And the Gold Medal for Currency Manipulation Goes to…
Posted by SCapozzola on August 26th, 2008
Yes, ManufactureThis often kvetches about China’s persistent currency manipulation. After all, the practice is illegal under WTO law. And it is responsible for a good part of Beijing’s mammoth annual trade surplus against the U.S. And the 30-40% de facto subsidy it gives to Chinese exporters is helping to undercut U.S. manufacturers, which puts more American factory workers out of jobs.
But sometimes the ManufactureThis crew actually has to stop what we’re doing and say, “Pinch me—I must be imagining this.”
As if China’s brazen flouting of world trade law isn’t enough, the London Telegraph reported today that Beijing has now “resorted to stealth intervention in the currency markets to amass US dollars.”
What exactly is China’s latest ploy?
According to HSBC Asia, “China’s central bank is in effect forcing commercial banks to build up large dollar reserves, using them as arms-length proxies in a renewed campaign of exchange rate intervention.” HSBC’s Daniel Hui estimates that the “pretext of reserve requirement hikes” amounts to nearly $50 billion in June 2008 alone.
China has boosted their “reserve requirement” for domestic banks five times since March, requiring them to store dollar reserves on such a massive scale that it is now affecting world currency markets. The Telegraph terms this “covert buying,” and believes it may help to explain “at least part of the explosive dollar rebound over recent weeks.”
And so, once again, the U.S. is confronted with brazen market distortions on the part of China. It might be fun to ask the presidential candidates, and in particular free trade advocate John McCain, just what they think of China’s latest tactics. Would they applaud such brazen self-interest? Or would they say, “This ain’t kosher and it needs to stop.” Either way, something has to give.
##
August 26th, 2008 at 11:23 pm
Unless the intervention on the dollar market in some +300 billion order was concerted between Federal and China. Too weak dollar shrinks China assets in USA. My bet is China goes on buying treasuries on Uncle Sam not letting the buck dive further. The other way around seems not probable, because the PRC is the creditor
August 30th, 2008 at 8:08 pm
What if the US returns to tariffs? I heard somewhere that, up until the last 40 yrs or so, we used to get something like 80% of US money from tariffs on imports; it’s now down to 7%. The rest of the world still does this. That would make imports more expensive, American-made products more reasonable in contrast, and force the average American (who doesn’t know any better) into purchasing “home grown” products.