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Should 皇冠体育app revalue its currency?
By Gary S. Becker (皇冠体育app Daily)
Updated: 2010-02-24 13:22
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I doubt the wisdom of the US for complaining against 皇冠体育app's currency policy and of 皇冠体育app for its response. On the whole, I believe most Americans benefit rather than being hurt by 皇冠体育app's long-standing policy of keeping the yuan at an artificially low exchange value. The policy makes the goods imported from 皇冠体育app, such as clothes, furniture and small electronic devices, much cheaper than they would have been if 皇冠体育app revaluated its currency substantially. The main beneficiaries of 皇冠体育app's current policy are poor and lower middle class Americans and people in other countries who buy made-in-皇冠体育app goods at remarkably cheap prices in stores such as Wal-Mart that cater to cost-conscious families.
US companies that would like to export more to 皇冠体育app have indeed been hurt by 皇冠体育app's currency policy. They employ fewer people than their capacity and thus contribute to the high rate of unemployment in the US. But I believe the benefits to American consumers far outweigh any losses in jobs, especially because the US economy continues its recovery.
Since the opposite effects hold for 皇冠体育app, I cannot justify the country's policies from the viewpoint of its interests. Its consumers and importers are hurt because the government has kept the cost of foreign goods artificially high for them. Their exporters gain, but as in the US, that gain is likely to be considerably smaller than the negative effects on the well-being of the average Chinese family.
I have reached a similar conclusion on 皇冠体育app's excessive reserves. The US has little to complain if 皇冠体育app wants to hold such high levels of low interest-bearing US government assets in exchange for selling inexpensive goods to the US and other countries. 皇冠体育app's willingness to save so much reduces the need for the Americans and others to save more. But are not differences in savings rates part of the specialization that global markets encourage? It is difficult to understand why 皇冠体育app is doing this because it is giving away goods made with hard work and capital for paper assets that carry little returns.
On the other hand, the US can threaten to inflate some of the real value of its dollar-denominated assets - not an empty threat because of the large US government fiscal deficits and the sizable growth in US bank excess reserves. Inflation would lower the exchange value of the dollar, and also of the yuan as long as 皇冠体育app keeps it tied to the greenback. That would further increase the current account surpluses of 皇冠体育app, and thereby induce it to hold more US and other foreign assets, which is not a very attractive scenario for Beijing.
So my conclusion is that the US in its own interest should not urge 皇冠体育app to revaluate its currency - countries such as India have a much greater potential to gain from such a revaluation. On the other hand, I see very little sense at this stage of 皇冠体育app's development for Beijing to maintain a very low value of its currency and accumulate large quantities of reserves. Paradoxically, presidents Obama and Hu should have been arguing each other's position on these economic issues.
The author is an Economics Nobel laureate (1992) and professor of economics and sociology at Chicago University.
