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China calls for unity against US “indirect exchange rate manipulation”

Posted by seumasach on November 8, 2010

Times of India

8th November, 2010

The US Federal Reserve’s decision to pour more money into the economy is a form of indirect currency manipulation that could spark a global collapse, a Chinese state-run newspaper said on Monday.

The Fed last week announced it would spend another 600 billion dollars buying government bonds to kickstart the US recovery, in a radical policy approach known as “quantitative easing”.

The move follows a similar cash injection into the struggling US economy worth about 1.5 trillion dollars during the crisis.

In a front-page commentary, the overseas edition of the People’s Daily, the Communist Party’s mouthpiece, said the Fed’s move would speed up the dollar’s depreciation and possibly cause countries to put up trade barriers.

“In essence this is printing money in an unrestricted way, which equates to indirect exchange rate manipulation,” said the commentary, written by Shi Jianxun, a professor at Tongji University in Shanghai.

“If a trade war is set off, the global economy will face not only a crisis, but very likely a collapse, because it will unavoidably trigger a wave of global trade protectionism and in the end everyone’s interests will be harmed.”

The comment piece, coming just days ahead of this week’s Group of 20 summit in Seoul at which global trade imbalances will top the agenda, is the latest in a barrage of criticism from Chinese economists and officials of US policies.

“All countries should join together to restrain the irresponsible US behaviour of issuing an excessive amount of money,” the column said.

It added the US action would increase inflationary risks within China by driving up commodity prices and lead to “huge losses” to the country’s foreign reserves, the world’s largest at 2.65 trillion dollars as of end-September.

It will also add to global excess liquidity, catching developing nations such as China in “a worsening dilemma” as they are pressured to let their currencies rise while facing a surge of speculative cash inflows, it said.

Emerging economies should “avoid allowing their currencies to appreciate too fast” and be prepared to deal with issues including currency and trade disputes in the long run, it added.

The United States and Europe accuse China of deliberately holding down the value of the yuan to benefit exporters. The currency has appreciated about 2.4 percent against the dollar since Beijing pledged in June to loosen its grip.

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