Wondering what they are thinking at Treasury

Not about pressuring China, we know what Treasury thinks about that:

Current Chinese policies are highly distortionary and pose a risk to China’s economy, its trading partners, and global economic growth….While China’s ten-year-long pegged currency regime may have at times contributed to stability, it no longer does so. The peg blocks the transmission of critical price signals, impedes needed adjustment of international imbalances, attracts speculative capital flows and is a large and increasing risk to the Chinese economy.

What we’re wondering is why the folks at Treasury think such ham-fisted pressure will achieve the desired (not by us) result. People’s Daily:

Reform of RMB exchange rate system is matter of China’s sovereignty and any pressure and speculative exploitation of the issue or any attempt to turn the economic issue into a political one will not be conducive to resolving it, Chinese Premier Wen Jiabao said during his meeting with guests from the US Chamber of Commerce Monday.

Wen said as long as conditions are ripe, the Chinese government “will take the initiative to advance the reform of the exchange rate system without any pressure from outside the country.” “If conditions are not available, the Chinese government will never hastily take any action, regardless of how great the pressure from outside is,” Wen said.

Local analysts said the statement of the Chinese leader is a response to the United States’ recent stepping up of pressure on China to change the exchange rate of RMB. They expressed the belief that Wen’s remarks will smash the recently heated speculations about revaluation of the Chinese currency.

We call your attention to the snippy and offensive remark we bolded above from the Treasury Department press release. China’s decision to adopt in essence a fixed exchange rate for the last decade “may have at times” contributed to stability? Are you kidding? China has grown at 9% a year for twenty years, and its peg to the dollar for ten years has mightily contributed to that stability, and accrued to the benefit of US consumers as well.

We recall the words of Larry Kudlow that developing country currencies do not float — they sink. We’re pretty confident that that would be the ultimate fate of China’s as well, even though the near term direction would be upwards.

One Response to “Wondering what they are thinking at Treasury”

  1. Dinocrat » Blog Archive » China’s export tax on textiles — a good idea Says:

    […] economics of former Clinton advisor Stiglitz is sound and less fraught with risk than the China bashing in the Bush Treasury Department to force […]

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