Against a Sea of Enemies: China as Currency Manipulator


One of the interesting things about the presidential debate tonight was the prominence of China. Governor Romney repeated his insistence that he would declare China a currency manipulator “on day one”.

ByMenzie Chinn

(I am surprised he didn’t mention the “yellow peril”.) If his criterion is forex intervention, he should be prepared to declare many other countries manipulators as well.

Readers of this weblog will know that I have been a consistent critic of Chinese exchange rate policy: [1][2][3]. However, now (or in January 2013) seems an odd time to strike at China.

Figure 1: Log real trade weighted Chinese yuan (blue, left scale), and value of Chinese yuan against USD (red, right scale); value for 10/16 (red triangle). Up is a currency Chinese appreciation. Source: BIS and FRED.That’s because the Chinese currency has been appreciating, and the degree of estimated undervaluation has decreased over time. Even the Peterson Institute for International Economics, which has been adamant historically, recently estimated a 3% undervaluation. [4]

And if it’s forex intervention, it’s many other countries. [5] According to Joseph Gagnon, we should include Switzerland and Israel… [6]