The article I read from Economist is titled “Will today’s currency interventions hurt or help the world economy”. After global financial crisis, every country wants its own economy recover rapidly by adjusting monetary policy. To stop domestic currency rising is the goal for each government, however their behaviors are very difference. For instance, Japan sold 23.6 billion dollar on 15th September, “Switzerland quadrupled its foreign reserves that to $219 billion, between September 13th and 16th Brazil’s central bank bought dollars at a rate of $1 billion a day, and China has built up 2.45 trillion dollar of reserves thanks to its determination to keep the yuan stable against the dollar”. From the view of author, economy recovery of the rich world needs reflating and a weaker dollar. Meanwhile, the author thinks China’s government interventions for controlling low exchange rate distorts the global economy.

Obviously, author thinks the currency interventions hurt the world economy, and make China an extreme example. However, I think author just want to use China’s exchange rate as an excuse for its dollar depreciation. Just like author said in this article “countries try to grab a bigger share of global demand at others’ expense”, so dollar depreciation definitely could hurt the world economy and other countries’ profits, but author may not consider this point. To the contrary, the value of Chinese domestic currency benefits lots of foreign companies that invest in China. (I have to admit currently China’s monetary policy and exchange rate is a hot topic in the world economy)

America could totally benefit from dollar depreciation, but global economy may bear more pressure because of this issue. A drastic fluctuation will be caused in the international financial market since dollar depreciated, as the sustaining depreciation of dollar and frequent fluctuations will increase the amount of trade in foreign exchange market and exchange rates will fluctuate frequently, and then cause foreign exchange market turbulent. On the other hand, there will be a change of value that between dollar-priced capital and other currencies-priced capital so that investors have to reevaluate asset value and rate of return, and then result in speculative trades increasing and disorderly movement of fund. Moreover, at present the dollar-denominated property that hold by foreign countries reach up to 5 trillion dollar, hence dollar depreciation will make a big loss for most countries.
Besides, America expect to Chinese yuan appreciation so that it could benefits from exports. Here is another good example to analysis China’s monetary policy: Japan’s economic recession after the “Plaza Accord”. 25 years ago Japan, America, France, German and UK united to guide dollar depreciation and Japanese yen appreciation through drafted “Plaza Accord” in order to solved America’s de deficits. The result of this issue is the famous Japan’s economic bubble 1990s. After this economic bubble busted, Japan’s economy was immersed in stagnant condition and continued more than ten years. Although Japan’s economic recession is not totally caused by rising domestic currency value, “Plaza Accord” is the main reason. Hence from the lesson of Japan, I think no country like to pay for the competitors’ fault by losing self-benefit.

Every country want to improve its own national competitiveness. American government may be very dissatisfied with China’s currency interventions policy, but this is a strategy for China to enhance her national competitiveness.

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