LQD: "Debunking the Dumping the Dollar Conspiracy" | 32 comments (32 topical, editorial, 0 hidden)

Re: The question that the Chinese authorities ... (none / 0)

I certainly agree that China's propping up the dollar, and how they go about doing that, has an affect on the dollar-euro and dollar-other exchange rates. (I think the affect is unlikely to be very large, however, but I haven't really looked at enough to say for sure, so I admit I could be wrong on that.) I did not mean to imply otherwise. However, that's a US Treasury problem, not China's problem. For China what matters is how its own currency and international buying power are changed by its exchange rate policies -- the gross and distributional welfare/development effects of favoring exports over imports or vice-versa.

The fact that China has the option to switch how it manages it's exchange rate policies -- and always has -- leads to the question of why they are choosing to track the US dollar so tightly right now. I think the most reasonable place to start is the political-economy equilibrium view: the current policy of pegging to the dollar best balances the current internal and external demands on government policy for the welfare of various interest groups. This means that moving away from that peg -- as US exporters and domestic industry wants -- needs to be understood as a set of conditions requiring a shift in the demands of Chinese interests (only one of which is its relationship with the US and others) on China's government.

China is pegging the dollar because it is in its best interests to do so, and it will change as soon as it is in its best interests to do otherwise.

by santiago on Sat Nov 7th, 2009 at 12:19:00 PM EST
[ Parent ]

Re: The question that the Chinese authorities ... (none / 1)

The fact that China has the option to switch how it manages it's exchange rate policies -- and always has -- leads to the question of why they are choosing to track the US dollar so tightly right now.

The evidence you have presented suggests that they are not targeting the US exchange rate with US currency transactions as heavily as previously and are targeting it more heavily with other currency transaction than previously suggests that they are are not taking for granted that they will continue to be targeting the US$ as heavily as they are now doing.

The peg is of course the actual piece of wood being placed in the actual hole that is actually being used to hold onto - anyone who has climbed a peg board in gym know that there's no implication of a peg holding its position for a long period of time if there is a different objective in mind.

I think the most reasonable place to start is the political-economy equilibrium view: the current policy of pegging to the dollar best balances the current internal and external demands on government policy for the welfare of various interest groups.

How about starting with the Iron Law of Oligarchy - an Oligarchy's first priority is staying in power. The number one threat to the oligarchy's hold on power is if there is no job creation to put large numbers of the new entrants into the labor force into employment. The oligarchy has for over a decade now used aggressive neo-mercantalist exchange rate policy as an essential element of its strategy to use export markets as a safety valve generator of employment.

"Political-economy equilibrium" sounds very much like an effort to export a theory that is radically incomplete in explaining economic behavior so that it can be radically incomplete in explaining a broader range of sociopolitical behavior. I suppose there is a sillier application of equilibrium theory than Chinese growth over the past 20 years, but none spring immediately to mind.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Nov 7th, 2009 at 06:25:33 PM EST
[ Parent ]

Re: The question that the Chinese authorities ... (none / 0)

I'm not sure why you think employment policy explains so much about a non-democratic regime's methods of keeping power, and I'm not sure that "keeping power" is even a very good explanation of Chinese governance objectives in general. As far as silliness is concerned, I think I'd better just let you rethink your last outburst of "iron laws" and the like. It seems you're lapsing into some simplistic paradigms of Chinese politics here, and political science in general, don't you think, especially coming from someone so well versed in the institionalist critique social science?

by santiago on Sun Nov 8th, 2009 at 01:02:07 AM EST
[ Parent ]

LQD: "Debunking the Dumping the Dollar Conspiracy" | 32 comments (32 topical, 0 editorial, 0 hidden)

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