Nobody has truly clean hands in the ongoing global currency impasse. China has been intransigent, so it deserves much of the criticism it is receiving. But it has no monopoly on self-serving policies. The US and the countries of western Europe are suffering economic pain as a result of policies that make sense for someone else – but they are not alone.
In most large developed economies, ultra-loose monetary policies and very high fiscal deficits are considered reasonable responses to high unemployment and depressed production. That is not so different from Chinese thinking about the renminbi, which is in line with experience from economies that emerged before it: a gradual pace of revaluation spreads out the pain that fast wage growth inevitably deals out to labour-intensive industries.
Extreme low interest rates, like currency controls, have global consequences. Just as the US has no protection from the cheap imports made possible by the low renminbi, so China has no protection from the downside of another effect of cheap money: higher commodity prices. The Reuters-Jefferies CRB index hit a two-year high on Monday. The rally is best explained by the ease with which speculators and industrial buyers can find funds to bid up the clearing price. As the world’s most voracious consumer of raw materials, this hurts China more than anyone else.