Asian Central Banks Resume Currency Manipulations

Includes: UDN, UUP
by: Howard Richman

The Financial Times reported on October 8 that many Asian central banks have joined China buying dollars, resuming the currency manipulations that they temporarily stopped practicing when the Great Recession began in October 2008. Here is a selection:

Asian central banks intervened heavily in the currency markets on Thursday to stem the appreciation of their currencies against the US dollar amid fears that their exports could be losing ground against China.

The mainly south-east Asian countries have been spurred to defend the competitiveness of their currencies by China’s decision to in effect re-peg the renminbi to the dollar since July last year....

The author, Gregory Taylor, supplied an accurate analysis. He wrote:

The moves to limit Asian currency appreciation is ammunition for those who warn that the new Group of 20 framework for strong and balanced growth is toothless. Less than a week after the world’s finance ministers and central bankers agreed to foster more balanced world economic growth in Istanbul, Asian officials have intervened to prevent exchange rates playing their part in the process.

The economists of our ivory towers have been hoping for years that the Asian central banks would permit balanced trade through floating exchange rates. But the negative response of the Asian central banks to the G-20 resolution shows that this is not going to happen. It's time for economists to look for a solution that works in practice, not just in theory.

Even if the Asian central banks would cooperate, balancing trade through a falling dollar right now could easily go too far, ending up in a dollar collapse. And besides, many of the Asian countries would still be continuing their policies of keeping out American products through tariff and non-tariff bariers.

There is one solution that would work, and it doesn't even require the cooperation of the Asian countries. The United States could easily balance trade, getting us out of the recession, stabilizing the dollar, and balancing our budgets, all at the same time. All we have to do is tie our imports from them to their imports from us through auctioned import certificates, as my father, son and I advocate in our book Trading Away Our Future.

Of course, the economists of our ivory towers would label any efforts by the United States to balance trade as protectionism. But, as my father is fond of writing, "Protectionism to achieve a trade balance is no vice and unilateral free trade that mortgages our country’s future is no virtue!"

Disclosure: No positions