Krugman on China and the Dollar

I rarely agree with Paul Krugman's views on economic policy, but his column today is dead on. His point is that China is propping up its currency, which is probably bad for China (because it distorts their choice of exports versus imports) and bad for the U.S. (because it hurts our exports), yet the U.S. refuses to recognize this fact:

U.S. officials have been extremely cautious about confronting the China problem, to such an extent that last week the Treasury Department, while expressing “concerns,” certified in a required report to Congress that China is not — repeat not — manipulating its currency. They’re kidding, right?

The thing is, right now this caution makes little sense. Suppose the Chinese were to do what Wall Street and Washington seem to fear and start selling some of their dollar hoard. Under current conditions, this would actually help the U.S. economy by making our exports more competitive.

I fully agree. The U.S. should take no official position on the value of China's currency, and we would be better off if China let its value fall to market levels.