U.S. Treasury Gone on Yuan
by Paul Springer
China retained its 800-pound gorilla distinction in the currency department Friday, when the U.S. Treasury Department declined to cite China for manipulating its currency.
“U.S. manufacturers believe China’s currency is undervalued against the dollar by as much as 40 percent,” the Associated Press said. “This makes Chinese goods cheaper in the U.S. market and American products more expensive in China.”
A number of media and market players have noted that the U.S. trade deficit with China last year was around $270 billion last year, a number that exceeds deficits with all other nations.
The Treasury’s report delineated numerous issues with China’s currency management, arguing that an undervalued renminbi poses problems for a variety of other countries and for China’s citizens, who face continuing inflation.
The report avoids accusations of manipulation and often seeks to praise China for making an effort. At times the document sounds like a grade school teacher struggling to explain a poor student’s behavior in positive language.
“Progress thus far is insufficient and… more progress is needed,” the report says.
The Treasury could “cite” China for manipulation, but this choice would have unknown political and economic repercussions. Besides, the Treasury pretty much never cites anyone.
“No nation has been cited since China was named in 1994,” The Wall Street Journal said.
One economist told Reuters that the Treasury’s twice yearly currency report cards are losing credibility:
Derek Scissors, a research fellow with the Heritage Foundation, said he agreed with Treasury’s decision not to cite China because it should be focused on other Chinese policies that are much more damaging to the United States.
However, the department has turned the report into a “minor joke” by repeatedly delaying its release, he said.
At this point it’s safe to say that no government wants to get into a currency war with China. So maybe we should take Scissors’ advice and focus on some of those “other policies,” like the ones involving human rights.
Here again the specter of virtual currency appears. According to one former Chinese prisoner’s account, The Guardian reported, prison bosses have found a way to make extra money by forcing inmates to follow up the day’s hard labor by playing World of Warcraft and other video games. And not for recreation.
The practice, known as gold farming, involves accumulation of virtual credits that can be sold for real cash. It’s not life-changing for one player, but guards were able to make hundreds of dollars a day by making large numbers of prisoners play games and aggregating the credits.
Punishment for playing poorly was purportedly not virtual, according to the prisoner:
“If I couldn’t complete my work quota, they would punish me physically. They would make me stand with my hands raised in the air and after I returned to my dormitory they would beat me with plastic pipes. We kept playing until we could barely see things,” he said.
That sounds pretty harsh. Then again, the U.S. might be an economically safer place if we had incorporated such treatment into the TARP plan rather than converting taxpayer money into big bonuses for executives.
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