It is everywhere these days. China’s ‘irresponsible’ monetary policy has contributed to recession in the west and Chinese MUST revalue their currency.
It is a bit funny though. During 50s to 80s when USA and other industrialized nations were exporting things everywhere, they wanted all countries to ‘peg’ their currencies against dollar or a basket of currencies (Saudia and some other oil exporting countries still have currency pegs). Now with the rise of service based economy and USA becoming net importer from China, they consider the same policy as ‘irresponsible’.
China’s foreign exchange reserves soared by $194.0 billion in the third quarter, the largest increase ever in a three-month period. Beijing’s stash is now $2.65 trillion…
…Nations, led by the United States, have wanted the Chinese to allow the currency to strengthen to permit the global rebalancing that must occur. Beijing, however, won’t permit substantial appreciation—the yuan increased by only 2.3% since June when the currency was supposedly unpegged from the dollar. As a result of the undervalued renminbi, the country will continue to rack up trade surpluses—its September surplus was $16.9 billion—and it will accumulate ever-larger amounts of foreign exchange reserves.
As the Chinese do so, the global economy grows more out of whack. Just as bad currencies drive out good ones—Gresham’s Law—bad currency policies kill off the responsible ones.
Eventually nations, fed up with Beijing’s beggar-thy-neighbor policies, will have to protect themselves with their own weak-currency policies. Will we soon see a currency Armageddon? …