Treasury Secretary Timothy Geithner is expected to make his semi-annual declaration to Congress on whether any countries are manipulating their currencies. Geithner has twice told Congress that China does not manipulate the dollar-yuan exchange rate, despite the fact that China has kept the rate fixed for almost a year and a half.
Geithner's report was due on April 15, but was delayed by the administration until after President Hu's visit to Washington on April 12-13 for the Nuclear Security Summit, where Hu stiffed Obama on both the exchange rate and Iran. The economic world has been wondering how the Obama administration would react.
An April 15 Voice of America story gives the first indication. Speaking to an association of American news editors. Geithner came out squarely in favor of letting China manipulate the yuan-dollar exchange rate:
Geithner said he is confident that China will eventually let the value of the yuan rise and see that it is in its best interest to do so. But like President Obama, Geithner was careful to stress that it is Beijing's decision to make, not Washington's.
"China wants to be a strong independent country," said Timothy Geithner. "And as a strong, large, independent growing economy, it doesn't make sense for that country to run a monetary policy exchange rate regime that effectively lets the [U.S.] Federal Reserve [the U.S. central bank] set interest rates for their economy as a whole."
Geithner's economic understanding shows a hole. The People's Bank of China is fully capable of running an independent monetary policy from the Federal Reserve whether or not they print yuan and use them to buy dollars. In fact, their yuan-dollar manipulations are inflationary, and China's current short-term problem is inflation. Geithner is a political scientist, not an economist, so he can be forgiven this lack of economic understanding.
But Geithner also shows some lack of political science understanding. Geithner thinks we should let the Chinese government manipulate the dollar-yuan exchange rate, which it does as part of its mercantilist policy designed to raise the price of American products and lower the price of Chinese products. He would leave the future of the American economy entirely up to the good wishes of a totalitarian government whose chief domestic enemy is democracy, whose chief international adversary is the United States, and whose goal is to bury us.
Disclosure: I own Chinese yuan through CYB
