China\’s currency manipulation

We\’ve heard a lot from American politicians about the way in which China manipulates its currency, keeping it artificially low and thus increasing the bilateral trade deficit.

That this is of course a boon to American consumers seems not to bother anyone. The demands that \”something be done about it\” are still all over the place.

Consumer inflation rate rose to 4.9pc in January from 4.6pc the month before, driven by a 10.3pc jump in food prices, despite repeated moves to tighten credit. Inflation hit a 28-month high in November, though analysts expect price pressures to continue in the coming months.

It looks like something is being done about it: inflation within China has the effect of raising the real exchange rate quite nicely.

For, as we know, a higher inflation rate in one country should mean that the currency should depreciate against that of the country where inflation is lower. But if the exchange rate stays static in the face of this higher inflation, this is a rise in the effective exchange rate.

So, I wonder, are peop[le noting this or will we still get the calls about China\’s \”currency manipulation\”?

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