More Currency Conflict ahead for U.S. and China

Posted by: Bruce Einhorn on December 3, 2008

Maybe Hank Paulson, the Bush Administration’s Old China Hand and friend of Beijing, won’t get such a warm reception on his final trip to China as treasury secretary. Paulson is now on his way to Beijing for two days of meetings grandly called the “Strategic Economic Dialogue.” In a preview, he yesterday gave a speech calling for China to allow its currency, the yuan (also known as the renminbi, or just RMB), to appreciate more against the dollar. “Continued reform of China’s exchange rate policies is an integral part of this broader reform process,” Reuters reported Paulson saying. “China has appreciated the RMB over 20 percent against the dollar since 2005 — this is important and significant, but it is important that the process continue.”

And what do the Chinese think about that? Headline on the front page of today’s China Daily, the official government newspaper, reads “US urged not to harp on currency issue at talks.” As if the image of a nagging Treasury Secretary wasn’t strong enough indication of Beijing’s stance, the China Daily follows up with a lead story in its business section with this headline: “Think tank wants RMB devaluation.” So there! “China needs to depreciate the renminbi against the US dollar to cushion the greenback’s sharp appreciation versus other major currencies over the past months, a researcher from a top government think tank said yesterday,” the paper reports.

Paulson is a lame duck and the Chinese are probably far more concerned about what the incoming Obama administration plans are for Sino-American relations. But it’s hard to see Obama taking a softer line on the dollar-yuan than the Bushies. If today’s papers are any indication, there will be more conflicts ahead between the two sides.

Reader Comments

Squeezebox

December 3, 2008 12:03 PM

China needs to wake up and realize that the dollar is worthless!

peace4all1

December 3, 2008 12:36 PM

BW might look forward for more conflicts between USA and China so it can sale its news. But I expect more coordination and cooperation on economic matters since neither party can afford lasting and damaging conflicts between them in the foreseeable future. I believe that Chinese currency will be appreciated once the President-elect takes the office. But the extent of appreciation of REMB will certainly depend upon how much cooperation America can afford.

Tom E.

December 3, 2008 3:13 PM

Currency rigging is not free trade.

Taking unilateral steps, if necessary, to end this manipulation will not be Smoot-Hawley, but a defense of free trade.

Yl

December 3, 2008 4:23 PM

United States wants China to keep RMB more expensive in order to reduce Chinese exports to US, but the same time it wants China to buy US treasury notes, Well if China has less US Dollars how it can buy more US treasuy notes ? Is it ironic ?
The real problem is the capitalist system make us seek maxmum gain. Because those companies want to make more money and they start to import from oversea and move production to oversea, if it's not imported from China or made in China, it will be made somewhere else instead of US period. Where ever they can make more money, these companies will make goods there and imoprt from a cheaper place. To solve the problems, Maybe we need to rethink globalization, maybe we forget there still borders and different systems when we start globalization

mark

December 3, 2008 5:53 PM

Like Paulson has the proven track record to give China ANY advice on financial policy...

PacificGatePost

December 3, 2008 7:42 PM

Market gyrations and Paulson’s also seesawing decisions are not instilling any confidence in the taxpayer. The depth of the economic hole is incalculable, and Bernanke seems to have a one-direction lever on interest. Where is the stress relief?

http://pacificgatepost.blogspot.com/2008/12/recession-depression-deflation.html

Andy

December 4, 2008 11:02 PM

China need to dump US dollar and focus more on investing in domestic and elsewhere.

jcage

December 6, 2008 3:50 AM

I would not be surprise if the Chinese and even the Arab switch to Europe if the American dollar start losing its value by then the USA won't be demanding China to raise the value of the Yuan in respect with the dollar!
The way the Federal government is printing trillions of $$$ to bail out bankrupt American banks and companies, it would lead to hyper-inflation and the $$$ becoming toilet paper! I guess that China will eventually need to unload the T-Bill and buy gold, Euro, natural resources, and industries and tech with the dollar before it lose all its value!

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