Posted by WARREN MOSLER on November 27th, 2012
This was my suspicion back in maybe May, 2011 when Bernanke made his strong dollar speech after China had let their T bill portfolio run off after the Fed had begun QE1.
Either China doesn’t understand QE or they are taking this position anyway, for further political purpose.
And in any case, in general they all remain blind to the fact that imports are real benefits and exports real costs.
By Tom Miles
Nov 26 (Reuters) — China blamed quantitative easing for damaging emerging economies and rejected Brazil’s proposal of using world trade rules to compensate for currency misalignments, during a debate at the WTO on Monday.
“We, together with many other countries, have been critics of this irresponsible and beggar-thy-neighbor policy,” China’s deputy permanent representative to the World Trade Organization, Zhu Hong, said, referring to the monetary stimulus policy often shortened to QE.
“It has a lingering negative impact on developing, emerging economies in particular,” Zhu said during a debate on currency fluctuations at the WTO in Geneva, according to a transcript provided by a Chinese official.
The meeting was called to discuss Brazil’s proposal that WTO rules should include a system for dealing with currency misalignments.
Brazil’s Ambassador Roberto Azevedo, who some trade diplomats say is a contender to replace WTO chief Pascal Lamy when he steps down next year, has gradually hardened up his demands on the issue.
After getting WTO members to agree to examine the available literature on the subject last year,Brazil circulated a proposal on November 5, explaining that WTO rules contained language about dealing with currency-related trade distortions but no adequate instruments to act directly.
“The WTO seems to be systemically ill-equipped to cope with the challenges posed by the macro and microeconomic effects of exchange rates on trade,” Brazil said in its proposal, a copy of which was obtained by Reuters.
“Members may wish, against this background, to consider the need for exchange-rate trade remedies and to start some analytical work to that effect.”
The proposal did not mention quantitative easing and explicitly called for analysis “from a systemic perspective” rather than from any one country’s experience.
But it was accompanied by a graph showing the estimated misalignment of Brazil’s own currency, the real, with an over-valuation of nearly 40 percent in 2011.
Brazil has previously called quantitative easing, a form of monetary stimulus, “selfish” and blamed it for stealing exports from emerging markets.
But China’s Zhu said the issue was one for the International Monetary Fund, not the WTO.
“Currency issue in nature is a monetary policy issue. The right path to resolve this issue is by enhancing the responsibility of and promoting coordination among the international reserve currency issuers,” Zhu said.
Brazil’s push for the WTO to take up the currency proposal has rolled onward despite struggling to gain vocal support, partly because it is unclear if such an idea would be workable in practice.
Donald Kohn, a former vice chairman of the Federal Reserve and a member of the Bank of England’s Financial Policy Committee, said that although he was not familiar with the proposal, such ideas did not make sense from an economic point of view in general.
“Emerging market economies should adapt, and they should change regulation to allow their exchange rates to be more flexible where that’s appropriate,” he told Reuters after giving a speech in Geneva earlier this month.
“But I think it’s not going to work and I think it’s unproductive to ask the industrial economies to do things that are not in their self-interest, within the rules of the game. Secondly, if what they’re talking about is tightening up on trade and restricting trade, that’s a very bad precedent.”