The US and China are at loggerheads again over the way China deals with its currency. It does not help both China and the US have two fundamental different ways to look at their currency, says economic analyst Arthur Kroeber, quoted by the Japan Times.
The Japan Times:
In a carefully argued presentation for the Brookings Institution, Arthur Kroeber, who is based at Brookings Tsinghua center, acknowledged that pressure from the U.S., the International Monetary Fund and World Bank, along with Chinese domestic concerns, had led China to allow appreciation from 2005. But he suggested that there was a gulf in the ways of thinking of the currency issue between the West and Beijing. In the Western view, the exchange rate is merely a price, and therefore consistent intervention by China to set the exchange rate below the market rate is a distortion that prevents markets from functioning properly. It also distorts China’s own economy by encouraging investment in exporting industry and discouraging investment in China’s consumer market.
Kroeber notes that China’s perspective is different: “Chinese officials see the exchange rate — and prices and market mechanisms in general — as tools in a broader development strategy. The goal of this development strategy is not to create a market economy, but to make China a rich and powerful country. Chinese leaders observe that all countries that have raised themselves from poverty to wealth in the industrial era, without exception, have done so through export-led growth.”