August 17 – Observers of international monetary economics have shifted attention back to the exchange rates of Asian currencies. The concern is that China’s yuan, Japan’s yen and Korea’s won are undervalued. All three countries run trade and current account surpluses, at a time when the US is running corresponding deficits. But given the fundamentals that keep US interest rates higher than the three Asians’, foreign exchange intervention is unlikely to be helpful.
- Three Asian currencies
Brad Setser has recently argued that, “The world should not ignore China’s undervalued currency”, while Gopinath, Gourinchas and Rey have responded that the US-China exchange rate is not the root cause of current account imbalances and does not warrant action by other countries. Should Beijing be internationally pressured to push its yuan upwards, as Donald Trump has long argued? (The People’s Bank of China used to intervene in the foreign exchange market to impede an appreciation. It stopped doing that in 2014, and started intervening to impede depreciation.)