November 17, 2010
For a few months now we are bombarded with news about an impending currency war as a result of the Chinese reluctance to allow their currency to appreciate against the dollar. The US, as the promoter of the latest round of China-bashing, has even enlisted the help of some of the EU’s high representatives. Not surprisingly, the concerted actions have led to the failure of the EU-China and G-20 summits recently, with no gains in sight for the US administration.
According to an op-ed written by Hans-Werner Sinn, Professor of Economics at the University of Munich, the renminbi has been undervalued for years, without the Americans being bothered about it. The currency war erupted after November 2009, when the Chinese have stopped using their forex reserves to buy dubious US bonds :
“The reason lies in capital movements. The US accepted the lower valuation of the renminbi as long as China returned the dollars that it earned from bilateral merchandise trade by financing America’s budget deficit. Now that the Chinese prefer to invest that money in raw materials in Africa and elsewhere, they have aroused the full ire of American policymakers.”
As the world’s biggest exporters of capital, the Chinese would have preferred to be given the Japanese treatment by the US and be allowed to invest their money in the American economy. They were rebuked, on grounds of national security, and only offered the opportunity to buy ” structured securities of questionable creditworthiness, as well as government paper that is now clearly exposed to the risk of inflation and devaluation”. In these conditions, can anyone blame the Chinese for choosing to invest their money elsewhere ?
In future, as professor Sinn suggests, “it would be a service to world peace if the US stopped making cheap moral accusations against China”. By the same token, EU representatives should keep their focus on policies that are in tune with the national interest of OUR union’s member states.Florian Pantazi