In recent days, major news outlets across the world have been reporting on the growing rift, particularily between China and the US, and more generally between 'developped' and 'developping' nations, over currency markets and monetary policy ahead of the G20 meetings in Korea this November.
The issue not only highlights the growing ability of emerging economies, such as China and Brazil, to stand up to the unbalanced global economic order imposed by European and American institutions, but the nature of the coverage has itself revealed a staggering bias and lack of insight by the Western media and points to an unsurprising but serious misunderstanding in the Western public as to how their economies function and relate to the global economy.
The issue has been politicized in the US for some time now, where people are being made to feel somehow that in a general way China is threatening the welfare of the American economy by holding its currency 'artificially low', causing the hemorraging US trade deficit and the continual loss of American factory jobs. The intended message to the public is clear when the US Treasury Department's not-yet-released study of whether China manipulates its currency to gain an 'unfair' trade advantage is referred to again and again, while credible statements to the contrary go unnoticed, such as the World Bank and IMF who foresee currency 'tensions', not 'war', and who admit that allowing China's currency to rise will do little to help the balance of trade in the US. Quite often, the fact that the yuan has already risen against the dollar by 20% since Chinese currency reforms five years ago is completely glossed over, or is noted as insignificant.
Nearly without exception, all Western news outlets decry China's 'intervention' or 'state manipulation' of the value of its own currency, along with other vaguely 'commie' sounding terminologies which are sure to raise the hairs on the back of every red-blooded American.
A nation's currency is the lifeblood of its economy, and a government's right to manage and manipulate the value of its own currency is not only necessary for the maintenance of economic stability, but also sovereignty. Free trading nations such as the US and EU resort to 'open market operations', manipulating interest rates, and lately 'quantitative easing'- the modern-day high-tech equivalent of printing more money. While China 'pegs' its currency's value against a basket of currencies to maintain its stability in global markets, something that the US and EU do not do, it is the height of hypocrisy for the US and EU to enact major inflationary measures such as quantitative easing to drive down the value of its currency for selfish political and economic reasons, and then call China beligerent and interventionist when it merely allows the value of the yuan to float along with the Euro and greenback.
Western efforts to cheapen the value of US and Euro dollar denominated debts and to make foreign-produced goods more expensive in their domestic markets, to beat back looming deflation, to bailout its financial institutions and to inflate economic data, all by devaluing their currencies, is neo-mercantilism, and an extreme provocation to developping nations dependent on exports, such as China, Brazil, India, Korea, and Thailand to name a few. Furthermore, Western governments, by lowering lending rates and increasing the supply of money in their domestic markets, have provided impetus to large financial institutions to go overseas to look for opportunities, thereby increasing competition, prices and the value of the domestic currency in those developping nations, as Western capital virtually invades and destabilizes their markets. To then attempt to dictate how these nations should or should not react to such provocations is the height of arrogance.
The truth is that the US and European economies remain extremely vulnerable to further collapse, and politicians and bureaucrats in these economies remain willing to enact extreme measures to prevent this, or to at least give the appearance to their constituents that they are doing so. The past few years have seen massive uncertainty and volatility in currency markets because of the banking crisis of 2008 and the Keynesian reaction to it and the recession it caused. That such uncertainty and volatility would spill over into the relations between the West and its global trading partners is perhaps predictable. However, painting China's monetary policy as the sponsor of Western economic woes is ridiculous, and does more to damage the accusors's credibility than it does to improve their economic situation.
Read articles on this topic, good and bad, at:
ABC News "China trying to avoid currency war"
http://abcnews.go.com/Business/wireStory?id=11865837
Xinhua News: "Sword of Damocles dangling over China-US economic ties"
http://news.xinhuanet.com/english2010/indepth/2010-10/16/c_13560709.htm
The Council on Foreign Relations: "Concerns over currency wars grow"
http://www.cfr.org/about/newsletters/editorial_detail.html?id=2222
The Globe and Mail: "Averting currency war tops G20 agenda"
http://www.theglobeandmail.com/report-on-business/economy/averting-currency-war-tops-g20-agenda/article1758134/
Arirang News: "Currency disputes heat up ahead of G20 Seoul summit"
http://www.arirang.co.kr/News/News_View.asp?nseq=108013&code=Ne2&category=2
The News Center: "Fx tensions mount ahead of Fed's Bernanke"
http://www.moneycontrol.com/news/world-news/fx-tensions-mount-aheadfed%60s-bernanke_491477.html
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