Jul 14 2007
Asian countries earn massive surpluses and keep their currencies down
I read today that 13 leading Asian economies including China and India have ammassed another $380 billion so far this year by exporting so many?? goods to the west.
That money has been invested in dollars and other leading currencies. The Asian Central banks have kept their currencies down by selling them across the exchanges, buying dollars, euro, sterling and other currencies. In turn they have probably bought dollar and Euro bonds with the money.
This buying has enabled the US and other western countries to carry on borrowing, building the credit house of cards which charaterises the modern western economy. At some point there needs to be currency reallignment - the Asian currencies are too cheap, and their goods too cheap, leading to these huge imbalances in global markets. Let’s hope we can reach adjustment without major convulsions and shocks. The cheap?? Asian currency policy underlies the precarious structure of world markets, as the imbalances are now so huge, and the resulting western indebtedness to pay for the Asian goods so large.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
It’s not fair to blame the Asians for doing what the West wants. As you well know it is the Americans who say one thing in public and another in private. The Americans still control the world economy and they think that it is in their interests to keep the price of their imports low.
Surely you are smarter than you make out?
Reply: The Americans do not control the world economy. The world economy is a delicate balance between the power of the debtor nations , led by the US, and the creditor nations, now led by China but supplemented by Japan, the Arab oil states and India. The US now favours a lower dollar to price its exports back into world markets, and has been encouraging China to allow a revaluation of her currency for some time.
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So who decides what currency is pegged to what then? I’ve heard noises from the US saying that China’s currency is undervalued, but isn’t it pegged to the dollar? How would this revaluation work then?
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