Currency manipulation? The US may have more to answer for than China

China has an increasingly balanced current account and a stable currency – none of which points to currency manipulation, whereas the US has arguably used quantitative easing to keep the dollar weak

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Is it a fair exchange or a case of the pot calling the kettle black? Chinese yuan and US dollars at a money exchange shop in Causeway Bay, Hong Kong, on August 5. Photo: Roy Issa

Published: 1:00am, 22 Aug 2019Updated: 2:00am, 22 Aug 2019

Two weeks ago, the US Treasury Department designated China a âcurrency manipulatorâ. Given the ongoing China-US trade war and negotiations, the real implications of such a designation are relatively insignificant.

But has China really been a currency manipulator?

The US uses three criteria to determine if a country is a currency manipulator: it must have a large trade surplus with the US; a large overall current account surplus, and; has intervened actively in the currency market.

However, only one applies to China â a large trade surplus with the US.

If the US had capital controls, the capital released by quantitative easing would have stayed in the US and increased domestic investment â and not resulted in the devaluation of the dollar.

Chinaâs trade balance in goods and services vis-Ã -vis the world declined from a peak surplus of 9.8 per cent of its gross domestic product (GDP) in the last quarter of 2006, to a deficit of 0.7 per cent in the first quarter of last year.

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