Economic Perspective: Is China Manipulating Its Currency?

DEE SHORE:

“Today’s program asks if China is manipulating its currency. Mike, it’s been alleged that China is using its power the change the worldwide power of its currency. I have three questions. What does this mean? Why would and country do it, and are the allegations against China accurate?”

MIKE WALDEN:

“Well years ago when China began its economic development they made a decision that they were going to develop by manufacturing products and selling those products to the rest of the world. Now in order to do that and help accomplish that goal, what they wanted to do was to have the value of their currency grade low because that actually made their exports cheaper and therefore would increase sales.”

“So many say that they really did manipulate their currency several decades ago to keep it low, and indeed we’ve seen a boom in manufactured products and exports in China. However, recently China has totally changed its policy. In fact, their manufacturing sector is quite mature now and if you want cheap manufacturing, you don’t go to China anymore, you go to other countries.”

“China now wants to be a world power, and with a world power you usually want to have a strong currency. So actually recently, China has worked to increase the value of their currency, not to decrease it.”

“So I think the charge here does stick if you looked decades ago, that China did work to decrease the value of its currency, but now I don’t think the charge does stick because China is working to increase the value of its currency. They want to attract foreign investments. They want to be a world power, and they see doing that means a stronger currency.”