Sunday, March 28, 2010

Currency Manipulation Used to Be Law of the Land; Isn't Hong Kong Also A Currency Manipulator?

"We shouldn’t forget that what they are calling “currency manipulation” today was the law of the land between WWII and the early 1970s. The Bretton Woods system was a system of currency manipulation (i.e. currency fixing or pegging) and movements away from its rules were considered breaking the rules."

MP: The chart above shows that the value of the Hong Kong dollar has been fixed at a fixed exchange rate of 7.8 Hong Kong dollars to the U.S. dollar for the last 25 years, while the Chinese Yuan has fluctuated from between 3 yuan and 9 yuan to the U.S. dollar over the last 25 years. Why are there never any claims that Hong Kong is a "currency manipulator"?


At 3/28/2010 11:24 AM, Anonymous Anonymous said...

Hong Kong isn't labeled a currency manipulator because it is a small target. People who are against free trade see an easy target in communist China.

I have several questions for Professor Perry.

1.) Is China engaging in mercantilist policies by keeping it's currency low?
2.) Even if their currency appreciated wouldn't those low cost manufacturing jobs just move to Vietnam or Malaysia?
3.) Is currency manipulation a real concern? If so how do you deal with the issue without starting a trade war?

At 3/28/2010 12:02 PM, Blogger Saimon said...

Because all currencies chart (like yours) are labeled in US Dollars !

At 3/28/2010 1:29 PM, Blogger stilettoheels said...

Is the Hong Kong currency peg for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.

The law

At 3/28/2010 2:12 PM, Blogger bobble said...

how absurd is it for a libertarian economist to keep arguing that government intervention in a market is ok?

if its ok for one market, then why not for all markets?

At 3/28/2010 3:53 PM, Blogger Ron H. said...

>"how absurd is it for a libertarian economist to keep arguing that government intervention in a market is ok?"

I assume you are referring to the original post.

I can't speak for Dr. Perry, and he certainly doesn't need me to defend him, but I think you are misreading the post.

Nowhere do I see an argument that government intervention in a market is OK. He is merely pointing out that it exists, and asks why those who cry about China's actions, are not crying about other currencies being pegged to the US dollar.

Also, Dr. Perry points out, whether right or wrong, currency manipulation was the norm until recently.

At 3/28/2010 5:18 PM, Anonymous gettingraional said...

Hong Kong must be the AAA minor league training facility for Chinese monetary authorities.

The world's second largest economy does not have a FOEEX market for its currency -- stunning non-market control! Where are all the free marketeers?

At 3/28/2010 5:19 PM, Anonymous Robert Wasilewski said...

Because China is holding its currency below fair market value so that it can intentionally run a huge surplus with the U.S. which is seriously exacerbating our trade deficit and resulting in long run dislocations. Nobody claims international economics is fair. China is a threat and because they have such a humongous investment in U.S. Treasuries we feel we can jawbone them on economic policy. Actually, it seems to be working a bit.

At 3/28/2010 6:13 PM, Blogger Mark J. Perry said...


1. China's currency policy encourages exports and discourages imports.

2. Depends. Some low-cost manufacturing jobs could move to Vietnam or Malaysia. But if the yuan appreciated, it would give Chinese manufacturers the advantage of cheaper imported inputs, assuming that some of its inputs are imported. If all inputs are domestic, then manufacturing output could certainly shift to other Asian countries.

3. I'm not concerned about China's currency policy, but many others are. The best approach is probably to let China decide its own currecny policy, and let them allow the yuan to appreciate when they're ready, without pressure from the U.S. Right now, American consumers and U.S. firms that purchase Chinese goods are gettting a great deal from China, and we shouldn't complain. What if they were willing to send us their goods for free - that would be even better, wouldn't it? The deep discounts due to a cheap yuan are almost as good.

At 3/28/2010 11:58 PM, Anonymous Lyle said...

It is interesting that most of the clothes I buy now are made in Pakistan, as Vietnam is clearly to expensive. Actually this is potentially good news for Afghanistan and Africa, as wages rise in Pakistan, thats about the only real low wage area left in the world. Recall that Britain killed of the textile industry in India because of the industrial revolution, so some time we will get automated clothes sewing and clothing manufacturing will move to where the cloth is woven.


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