Archive for March, 2010
The Chinese renminbi is undervalued by about 25 percent on a trade-weighted average basis and by about 40 percent against the dollar.1The Chinese authorities buy about $1 billion daily in the exchange markets to keep their currency from rising and thus to maintain an artificially strong competitive position. Several neighboring Asian countries of considerable economic significance—Hong Kong, Malaysia, Singapore and Taiwan—maintain currency undervaluations of roughly the same magnitude in order to avoid losing competitive position to China.
Joseph E. Gagnon argues that despite fears that China might dump US dollars, doing so would hurt China and could even help the US recovery.
Edited transcript, recorded February 18, 2010.
Steve Weisman: After years of current account surpluses, China is believed to have accumulated in excess of a trillion dollars in dollar-denominated reserves. Does that mean that China has the United States over a barrel in economic negotiations? Joseph Gagnon, senior fellow at the Peterson Institute for International Economics, says not necessarily. This is Steve Weisman at the Institute with Joe to discuss this topic. Thanks, Joe.
by Simon Johnson, Peterson Institute for International Economics and Peter Boone, Effective Intervention
Op-ed in the Wall Street Journal
February 13, 2010
Plutus, the Greek god of wealth, did not have an easy life. As the myth goes, Plutus wanted to grant riches only to the “the just, the wise, the men of ordered life.” Zeus blinded him out of jealousy of mankind (and envy of the good), leaving Plutus to indiscriminately distribute his favors.
Modern-day Greece may be just and wise, but it certainly has not had an ordered life. As a result, the great opportunity and wealth bestowed by European integration has been largely squandered. And lower interest rates over the past decade—brought down to German levels through Greece being allowed, rather generously, into the eurozone—led to little more than further deficits and a dangerous buildup of government debt.
President Obama has smartly suggested that a new export strategy could support 2 million very good American jobs, more than created by his stimulus initiative. The United States already sells about $1.5 trillion worth of goods and services annually to the rest of the world, which creates about 10 million high-paying jobs. Every $1 billion of additional exports will produce about 7,000 very good jobs. Robust export expansion would also reduce our large trade deficits and resultant need to borrow abroad to finance them.