Q&A’s on China’s big, ongoing currency move

August 13th, 2015 at 8:46 am

Many interesting aspects to this, including its presence on the front pages! Over at PostEverything.

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One comment in reply to "Q&A’s on China’s big, ongoing currency move"

  1. Kevin Rica says:

    This is different from two years ago. China is still running a large and growing trade surplus, but the PBoC is not financing it by reserve purchases. This time, China’s tightly controlled capital account has reversed and gone into deficit. It is the capital account that is now financing the current account surplus. Same end, different means.

    The US is wedded to the conventional wisdom and can’t challenge China’s move. They won’t acknowledge the role of capital controls in manipulating the exchange rate.

    The conventional wisdom will not allow any challenge to two articles of faith (beliefs that cannot be challenged even by facts and need not be proven):

    1. There can never be too much savings because savings finance investment and investment causes growth.

    (The zero-interest-rate lower bound, secular stagnation, and the excretion of surplus savings by countries like China and Germany are merely facts to be triumphed by faith.)

    2. International movement of capital should be absolutely unrestricted.

    (The fact that so much of open-economy macro theory is about containing the damage caused by international capital movements does not bother economists of faith. Economists of faith believe that the Ricardian theory of comparative advantage some how supports this – contrary to fact.)