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China’s Currency. How Low Can You Go?

By Dan Harris on Posted in Recommended Reading

The International Law and Policy Blog is just out with a post that very nicely summarizes various positions on China’s currency. The post is entitled, “Summary of China Currency Views,” and it seeks to do the following:

I thought it might be interesting to gather up the various views that have been expressed on the China currency issue. I have two key questions in mind:
1) Is the Chinese currency peg at an (allegedly) undervalued rate bad for the U.S. economy/global economy?
2) If it is bad, what is the appropriate response?
Here’s a brief rundown of some views expressed by prominent bloggers/op-ed writers/others on each point, in no particular order.

It does a nice job setting forth the various views and providing good links to people who put forth various well-reasoned arguments for all sorts of positions. I could not read it without thinking of one of my favorite economics jokes:

An economist, a physicist and a chemist are stranded on an island with one unopened can of food. The physicist suggests they roll the can down a hill where it will strike a rock which will pierce the can and release the food. The chemist suggests they cool the can in the ocean then heat it in the sun so as to cause the can to burst. The economist suggests they assume they have a can opener.

What do you think?

  • http://www.business-law-and-litigation.com Mike Williams

    As a Denver business lawyer, I am not a macro economist. But I can say that the renminbi should float freely and permit American export goods to compete with local Chinese goods on an even footing. Some of this will happen anyhow as the dollar falls in value over the next decade.

  • outcast

    This reminds me of an article I found recently about this seeming freeze is US China relations:
    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7442926/Is-Chinas-Politburo-spoiling-for-a-showdown-with-America.html
    And I’m going to provide a quote from the last paragraph:
    “China’s trasformation has been remarkable since Deng Xiaoping unleashed capitalism, but as ex-diplomat George Walden writes in China: a Wolf in the World? you cannot feel at ease with a regime that still covers up Mao’s murderous nihilism. He reminds us too that China has never forgiven the humilations inflicted by the West when the two civilizations collided in the 19th Century, and intends to exact revenge. Handle with care. ”
    Do you think China is out to avenge historical injustice commited by what are now long dead people?

  • Stephan Larose

    What I think is hilarious here is that most of the economists say that protectionism is bad for the US and that the “free trade” has been a net benefit for US citizens. China is incredibly protectionist – lo and behold its economy grows at blistering speeds (as did those of industrial nations when they went protectionist in their infancy), while the US economy produces nothing.
    Unfortunately, competing with China’s (and other 3rd world producers) low-wage, no environmental protection manufacturing regime has caused Americans not to see their incomes rise in real terms since the 70′s, meanwhile, prices of cars, houses, education, travel, and even sneakers (despite being made for cheap) have all skyrocketed.
    The “floating currency” is a highly destabilizing, and fairly recent innovation in economics, for the vast majority of human history, coin was gold or silver, which never vary in relation to each other. Devaluing a nations money essentially devalues its people, adds incentive to speculate, and increases overall entropy in the financial system. A better way would to fix all exchange rates at 1:1 and simply kill this deficient child of economists minds.
    Oh, and all that virtual debt banks have created out of thin air that we supposedly owe, global default.