The Currency Wars: Coming Soon to a
Nation Near You
"Several Chinese officials haven’t hesitated to
talk about the risk of a 'currency war,' and have warned the U.S. Senate
against the adoption of a bill that provides for penalties against the products
of countries of concern."
Once again, there is talk of the
undervaluation of the yuan and a possible monetary showdown between the United
States and China. As is almost always the case, the offensive comes from
Washington. Last week, U.S. senators voted by a large majority (79 against 19)
to open debate on legislation that aims to penalize all countries that maintain
an artificially weak currency in order to boost their exports. Of course, the initiative
is primarily aimed at China, which is regularly accused of distorting
commercial competition by keeping the renminbi (the other name for the yuan) at
least 40 percent below its actual value (the yuan hasn't grown more than 3
percent against the dollar since the beginning of the year).
TEMPERS IN WASHINGTON AND BEIJING FLARE
As can be expected, Chinese authorities have
little appreciation for this frontal attack. As a sign of the fury in Beijing,
three separate official reactions questioned the Senate's move. The ministries
of Foreign Affairs and Commerce and the Central Bank all denounced firmly, if
not virulently, an act which “seriously violates World Trade Organization
rules.” Several Chinese officials haven’t hesitated to talk about the risk of a
“currency war,” and have warned the U.S. Senate against the adoption of a bill
that provides for penalties against the products of countries of concern. On
the U.S. side, this isn't the first time that the Senate has expressed an
inclination to cross swords with China over the yuan.
Posted by WORLDMEETS.US
This time, keeping in mind the November 2012
elections, which will be held with the unemployment rate flirting with 10
percent of the labor force, elected officials in the U.S. Capitol will be debating
this issue. And in this case, they have just obtained the valuable support of
Ben Bernanke, chairman of the Federal Reserve (the
FED). According to him, the undervaluation of the yuan, “threatens that global
recovery because it prevents the rebalancing if aggregate demand in emerging
economies.”
In plain terms, American authorities accuse
their Chinese counterparts of not importing enough foreign goods, to the
detriment of, among others, U.S. exporters. Even President Barack Obama has
entered the fray, declaring on Thursday, October 6, that “China has been very
aggressive in gaming the trading system to its
advantage and to the disadvantage of other countries.” Even so, the White House
remains reserved, if not hostile, toward the Senate's proposed legislation.
Such is also the position, for the moment, of the House of Representatives.
A RETURN TO PROTECTIONISM?
In addition to the debt issues of European
states and the fragile health of the international financial system, it is
clear that the issue of the currency will be part of the G20 agenda in Paris next
month. But it is still not clear that China is the only country deserving of
indictment. Indeed, many emerging countries, including Brazil, don't like the ongoing
weakness of the dollar, because except for the yuan, the greenback has fallen against
all other major currencies, including the euro. As a result, the risk of a “currency
war” cannot be excluded in the coming months - a development that would do nothing
but reinforce the rise of protectionism.
