Prostitutes, Yuan Critics Big Losers at G-20

Image: Photos8

By Paul Springer

The latest G-20 meeting took place over the weekend, and security was seriously beefed up in order to clamp down on protest activities.

While the meeting was a yawner in some ways, it came across as bad news for two unrelated groups, local prostitutes and people who had hoped to see specifics taken to rein in China’s currency support.

The problems for Seoul’s sex workers will go away along with the G-20 guests, according to a report from Asian Correspondent. “It seems that the heightened security in the area has caused local madams and pimps to scale back their business for a few days.”

Meanwhile, China continues pimping its currency shamelessly, according to critics who say the meeting did little or less to address China’s currency valuations. The country technically “depegged” its currency last summer, but many (i.e. everyone but the Chinese) feel it does not trade anything like a freely floating currency.

Critics say China is intentionally keeping its currency too cheap, which boosts its exports while depressing the manufacture of similar products in countries importing them from China.

The role of currency in the interaction between the economies of China and the U.S. has a long history. One critic who stands tall in the hedge fund business is Paul Tudor Jones, who said in a recent investor letter (via dealbreaker.com) that artificial Renminbi/U.S. Dollar exchange rates have contributed to job loss in the U.S. and China’s purchasing of disturbing amounts of U.S. debt.

How did we get here? On January 1, 1994, China devalued its currency by 50% in a single day, and since then has experienced a manufacturing boom. After 15 years of impressive productivity gains relative to its trading partners, though, it now resists the smallest appreciation . . . . Clearly, there is a direct correlation between the six million manufacturing jobs lost in the US and the close to twelve million manufacturing jobs gained in China over the last two decades.

After a big build-up, the G-20 petered out as President Obama’s efforts to get a handle on the currency scene intensified, and an account from ABC News says it may have actually backfired:

But the narrative soured once Obama arrived in Seoul, South Korea, for a meeting of the Group of 20 developed and emerging economies. Obama failed to achieve a free-trade deal with Korea that was to have been the biggest trophy of his trip, and instead of banding with America against China’s currency manipulation, several countries aligned themselves against it.

At the same time, the Fed’s announcement of a $600 billion buying spree in the U.S. opened the door to charges that it too is moving to devalue its own geld, a move that did not play well coming just before the summit. Analysis from Time finds some good in the meeting but notes problematic issues:

As a result of the Fed’s moves, the Chinese were able to turn the charge of “currency manipulation” right back at America, and all but accused the U.S. of blatant hypocrisy. The British prime minister, meanwhile, scoffed at the inability of Americans to bring spending under control.

Substantial questions remain about what can be done to arrive at a currency valuation equilibrium among China, the U.S., and a host of other nations. Those questions will remain unanswered until the next G-20 meeting, as will the question of whether the G-20 can actually effect any kind of meaningful change.

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