Tags: paul | Krugman | China | Currency | yuan

Krugman: China Is Playing Games With Currency Moves

Friday, 25 Jun 2010 10:09 AM

China's recent currency move is meaningless and clouds the real issue, which is that China has been promoting its exports at the rest of the world's expense, says economist Paul Krugman.

"Far from representing a step in the right direction, the Chinese announcement was an exercise in bad faith — an attempt to exploit U.S. restraint," Krugman writes in the New York Times.

The Chinese, says Krugman, are playing word games to avoid dealing with the substance of U.S. complaints.

“China’s exchange-rate policy is … a classic example of a government keeping the foreign-currency value of its money artificially low by selling its own currency and buying foreign currency," Krugman says.

That China’s central bank has accumulated more than $2 trillion in dollars, euros and other foreign assets proves the country is keeping the value of its currency artificially low, Krugman asserts.

“There have been all sorts of calculations purporting to show that the renminbi isn’t really undervalued, or at least not by much. But if the renminbi isn’t deeply undervalued, why has China had to buy around $1 billion a day of foreign currency to keep it from rising?” he asks.

Such currency undervaluation makes Chinese goods artificially cheap to foreigners, Krugman points out, while making foreign goods artificially expensive to the Chinese — just as if China were simultaneously subsidizing its exports and placing a protective tariff on its imports.

The Asian Development Bank said in a report this week that China's yuan could rapidly become an internationally used currency and serve as an alternative to the U.S. dollar in central bank reserves.

"The renminbi has yet to become an international currency. It could become one much more quickly than many anticipate," the ADB said in a joint study with Columbia University's the Earth Institute.

"The internationalization of the renminbi has the potential to become an alternative to the U.S. dollar — as did the euro — and help nudge the global reserve system toward a multi-currency reserve structure," it said.

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China's recent currency move is meaningless and clouds the real issue, which is that China has been promoting its exports at the rest of the world's expense, says economist Paul Krugman. Far from representing a step in the right direction, the Chinese announcement was an...
paul,Krugman,China,Currency,yuan
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2010-09-25
Friday, 25 Jun 2010 10:09 AM
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