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Isn't Currency Control a Protectionist Policy?

Name: Erika Schwarz
City & State: Brisbane, Australia

yuan; via Flickr

Question: One of the commentators on the Newhour recently said that China does not want to devalue its currency for fear of decreasing the attractiveness of its export products and increasing unemployment in China. But the Chinese president recently seemed to be preaching the virtues of free trade and non-protectionist policies. Isn't currency control an indirect protectionist policy?

Paul Solman: Wait. You mean a president of a country seemed to be saying something in public that was at odds with his true intentions? I'd suggest yelling 'Stop the presses!' if they weren't already grinding to a halt on their own.

(Just for the record, the commentator, Yasheng Huang, said that China does not want to REvalue its currency -- making its currency, and thus its exports priced in Chinese currency, more expensive in American dollars.)

To answer your possibly rhetorical question: Yes, currency control IS an indirect protectionist policy.

But what's more interesting is all the talk these days of China in economic trouble and, therefore, in no position to REvalue its currency, for fear of accelerating a downturn. The proponents of this view are known as the China bears. I hereby dub them The Pandas. Among them numbers one of my favorite economic analysts, Albert Edwards of Societe Generale, as well as Jim Chanos, the extremely astute short seller who brought Enron's problems to light and (See Politico's Is China Headed Toward Collapse? for further details.)

-- Posted December 1, 2009 | Comments ( ) | Permalink