Published on ShanghaiDaily.com (http://www.shanghaidaily.com/)
http://www.shanghaidaily.com/article/?id=356613&type=Opinion
It's US dollar, not yuan, that's the global problem
Created: 2008-4-21
Author:Mei Xinyu
US Treasury Secretary Henry Paulson visited China again recently with the main purpose of making arrangements for the fourth China-US Strategic Economic Dialogue to be held in the United States this June.
At a time when the US dollar is in a continuous fall and is thus making a huge mess in the world economy, China should insist on making the US dollar devaluation a topic of the dialogue.
The negative results of the US dollar's decline are evident: the rising prices of all primary products, the intensified pressure on inflation globally, the confusion in the settlement of international transactions, etc.
Worst of all, this is the US' disguised way of avoiding paying off its debts to foreign countries.
It should be noted that the US is the biggest debtor country in the world.
According to statistics by the US Department of Commerce, if calculated in current prices, the US turned into a net debtor country in as early as 1986 with a net yearly debt of US$36.2 billion; if calculated in market value, the US turned into a net debtor country in 1989 with a net yearly debt reaching US$47 billion.
By the end of 2006, the US' accumulated net debt overseas hit US$16 trillion.
As most of the debts were calculated in US dollars, the US is actually welshing on its debts malignantly by allowing the devaluation of US dollars.
Since China is the country with the world's biggest foreign exchange reserves, most of which are calculated in US dollars, China thus is hurt most greatly from the US dollar devaluation.
The debt itself is not so serious a problem as the fact that the US is not building good credit.
It applies double standards towards itself and foreign countries in terms of paying off debts.
When collecting debts from foreign countries, or when faced with the application of foreign countries for US foreign aid loans because of their domestic financial crisis, the US attaches great importance to the protection of its own interests as a creditor.
The debtor country must rectify its domestic economic order in accordance to the US requirement, pay huge service charges for the aid loans, put petroleum or other reliable export income in pledge, revise its law of bankruptcy so as to ensure the priority claims of foreign creditors, and so on.
Bad track record
When being a creditor, the US government, as well as the governments of many other Western countries, also learned to make full use of their political influence to seek additional benefits.
However, the US as a debtor is totally different.
Its bad international credit records can be traced back to as early as the time when the country was just an emerging market that relied hugely on the investments of European countries.
During the recession in the 1840s, the market value of US municipal bonds fell from US$1 to 50 US cents.
Yet five states, namely Pennsylvania, Mississippi, Indiana, Arkansas, Michigan and the Florida Territory were still unable to pay their due interests. By 1990s, the State of Mississippi had not yet paid off its debts from 150 years ago.
Today, the Uncle Sam's means of debt repudiation toward foreign creditors is even more direct and unbearable.
In 2005, it put forward a deal pushing China to allow yuan appreciation by 27.5 percent against US dollars within six months by threatening to impose a 27.5 percent penalty tariff on Chinese imports otherwise.
That is equivalent to requiring China to reduce US debt to China by 27.5 percent.
Unreasonable as the requirement is, the US still proposed it as if it were highly justified.
Generally speaking, in our foreign trade and economic negotiations, especially those with developed countries, China is still in a passive situation. The best evidence is that main topics are usually proposed by foreign counterparts while China only makes passive responses, which is especially the case in our negotiations with the US.
Due to such objective restrictions as our economic development level and limited talent pool, it is unlikely that China would make a total difference in such a situation within a short period. But we should not take it for granted, either.
China should also put forward its own requirements in favor of the interests of its people loudly and confidently, and make its own proposals as well.
China's US dollar assets are the money earned by its people through hard work, so the central government has the obligation to preserve them rather than allowing the depreciation of US dollars.
Therefore, China has all the more reason to propose making US dollar depreciation a topic of the next China-US Strategic Economic Dialogue.
(The author is a senior researcher under the Ministry of Commerce. The views are his own. He can be reached at www.meixinyu.com.)
At a time when the US dollar is in a continuous fall and is thus making a huge mess in the world economy, China should insist on making the US dollar devaluation a topic of the dialogue.
The negative results of the US dollar's decline are evident: the rising prices of all primary products, the intensified pressure on inflation globally, the confusion in the settlement of international transactions, etc.
Worst of all, this is the US' disguised way of avoiding paying off its debts to foreign countries.
It should be noted that the US is the biggest debtor country in the world.
According to statistics by the US Department of Commerce, if calculated in current prices, the US turned into a net debtor country in as early as 1986 with a net yearly debt of US$36.2 billion; if calculated in market value, the US turned into a net debtor country in 1989 with a net yearly debt reaching US$47 billion.
By the end of 2006, the US' accumulated net debt overseas hit US$16 trillion.
As most of the debts were calculated in US dollars, the US is actually welshing on its debts malignantly by allowing the devaluation of US dollars.
Since China is the country with the world's biggest foreign exchange reserves, most of which are calculated in US dollars, China thus is hurt most greatly from the US dollar devaluation.
The debt itself is not so serious a problem as the fact that the US is not building good credit.
It applies double standards towards itself and foreign countries in terms of paying off debts.
When collecting debts from foreign countries, or when faced with the application of foreign countries for US foreign aid loans because of their domestic financial crisis, the US attaches great importance to the protection of its own interests as a creditor.
The debtor country must rectify its domestic economic order in accordance to the US requirement, pay huge service charges for the aid loans, put petroleum or other reliable export income in pledge, revise its law of bankruptcy so as to ensure the priority claims of foreign creditors, and so on.
Bad track record
When being a creditor, the US government, as well as the governments of many other Western countries, also learned to make full use of their political influence to seek additional benefits.
However, the US as a debtor is totally different.
Its bad international credit records can be traced back to as early as the time when the country was just an emerging market that relied hugely on the investments of European countries.
During the recession in the 1840s, the market value of US municipal bonds fell from US$1 to 50 US cents.
Yet five states, namely Pennsylvania, Mississippi, Indiana, Arkansas, Michigan and the Florida Territory were still unable to pay their due interests. By 1990s, the State of Mississippi had not yet paid off its debts from 150 years ago.
Today, the Uncle Sam's means of debt repudiation toward foreign creditors is even more direct and unbearable.
In 2005, it put forward a deal pushing China to allow yuan appreciation by 27.5 percent against US dollars within six months by threatening to impose a 27.5 percent penalty tariff on Chinese imports otherwise.
That is equivalent to requiring China to reduce US debt to China by 27.5 percent.
Unreasonable as the requirement is, the US still proposed it as if it were highly justified.
Generally speaking, in our foreign trade and economic negotiations, especially those with developed countries, China is still in a passive situation. The best evidence is that main topics are usually proposed by foreign counterparts while China only makes passive responses, which is especially the case in our negotiations with the US.
Due to such objective restrictions as our economic development level and limited talent pool, it is unlikely that China would make a total difference in such a situation within a short period. But we should not take it for granted, either.
China should also put forward its own requirements in favor of the interests of its people loudly and confidently, and make its own proposals as well.
China's US dollar assets are the money earned by its people through hard work, so the central government has the obligation to preserve them rather than allowing the depreciation of US dollars.
Therefore, China has all the more reason to propose making US dollar depreciation a topic of the next China-US Strategic Economic Dialogue.
(The author is a senior researcher under the Ministry of Commerce. The views are his own. He can be reached at www.meixinyu.com.)
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