Continued from Part One.
Governments in many developing economies and a few higher-income countries are said to have bought nearly $1.5 trillion of reserves and other foreign assets last year, and their combined trade balances of countries actively purchasing foreign currency are estimated to be $1 trillion higher as a result.
Debate could and probably will rage about whether all the countries listed in Part One should be on such a list.
Closest to home in Europe, one has to ask if Switzerland can be said to be depressing its currency. Yes, it has sold francs to stop the currency rising too far, but the strength of the Swiss franc is all about safe-haven status relative to the euro, not fundamentals like high domestic interest rates or a strong economy.
Prior to the Euro-zone crisis, the Swiss franc was 30-40 percent lower than it is now, and even after some intervention, current levels must be crucifying Swiss exporters. This example illustrates the problem with some of the FT article’s authors’ proposed solutions.
Applying import tariffs on goods from Switzerland, for example, to deter any further intervention would push the Swiss economy into recession, and in the wider context, threats of raising import tariffs echoes 1930s-style protectionism – with all the damaging results that policy ensured.
Yet suggestions that concerted action by leading blocks such as NAFTA, the EU, and even the IMF, via the WTO, has merit. Lone voices are ignored; a concerted clamor would not be so easy to ignore.
Whatever solution or solutions are deemed appropriate, the point here is that by expanding the analysis beyond simply China, the authors have rightly moved the argument beyond a US-China dispute to a more professional analysis of currency manipulation among all trading nations.
China will be a part of this, but can partake in a wider debate more readily if it is seen as both perpetrator and victim. The West cannot ignore this issue any longer – too many jobs have already been lost and more are at risk.
With no fiscal levers left to pull to help their ailing economies, turning a blind eye to currency manipulation is no longer an option.