The First Victim of a Chinese Currency War: the Chinese People

The news is reporting on a Chinese currency war as if the key to economic prosperity is found in debasing the currency.

The Chinese people need stuff so they have to buy stuff. In order to do this as efficiently as possible, they need to use money when they buy stuff. Unhappily, rather than use a real commodity for money, the government banking system has commandeered the social institution of money and replaced the commodities with paper symbols (or computer figures).

So now China has begun (?) devaluing its currency. reports, “Currency War? Chinese Move Shakes World Markets.”

In a move that some analysts fear could be the start of a “global currency war,” China’s yuan dropped again today, dragging other Asian currencies down with it. Today’s drop against the dollar was the second biggest since 1994, exceeded only by yesterday’s, and the rapid fall has led some to believe that the country is trying to boost exports and create jobs at the expense of rivals like South Korea, Reuters notes. It’s not clear how long the drop will continue: China has described the devaluation as a “one-off,” and the New York Times notes that with $3.5 trillion in foreign currency reserves, China certainly has the ability to prevent any unwanted falls in the yuan.

A change in the tightly controlled exchange-rate mechanism means the yuan could continue to drop 2% a day, the AP reports. The IMF has welcomed the move as a way to give market forces more control of a currency that China wants to play a bigger role globally, but US lawmakers are skeptical. “For years, China has rigged the rules and played games with its currency,” says Sen. Chuck Schumer, per the AP. “Rather than changing their ways, the Chinese government seems to be doubling down.”

Right, because we would never debase our currency or manipulate it. Oh, wait…. How embarrassing! Or it would be embarrassing if politicians were capable of feeling shame when they practice transparent hypocrisy.

The real fallacy in the way this is reported is that China is portrayed as getting an advantage at the expense of other nations. This is done by identifying the economy with its export industries and ignoring everything else. But in the real world, the Chinese people have nothing to use as money except the currency that their government banking system is devaluing. Yes, the Chinese will have an advantage in exporting. And the rich cronies who are invested in the stimulated industries will get richer because of that advantage. But their revenues will come at the expense of most of their countrymen as their ability to buy goods gets reduced. They will have jobs, but their wages won’t be able to purchase as much as they once did.

Pretending this is a move that is favorable to China as a nation is preposterous. Imagine the world reaction if we in the U.S. had forced China to give us things at reduced prices. Imagine we made Chinese laborers work for less and have less money (when measured by purchasing power) with which to spend on their needs. Would anyone consider that to be a good thing for the Chinese? Then why is it considered an advantage for the Chinese when their own government does the same thing to the Chinese people?

The Chinese are plundering their own people and their own resources for foreigners when they debase the currency. This should be seen for what it is: a form of economic suicide.