Currency Concerns Under Uncertainty: The Case of China

Sunanda Sen, Guest Blogger

Concerns have been rising, in recent months, over the current state of China’s external balance and the future of the RMB. Apprehensions relate to the negative balances, which have been visible in China’s financial balance since the last quarter of 2011. The negative sums were respectively (-) $ 3.02 and  (-)$ 4.21 billion during the second and third quarters of 2012, preceded by an even larger sum at (-)$ 29.0 billion in Q4 2011. Such deficits contrast with the surpluses in the financial account usually maintained, which were as much as $13.20 billion during Q4 of 2010.  These changes have been matched by tendencies for its official reserves to slide downwards. For instance, there was a $ 6 trillion drop in official reserves between March and June 2012. Pressures on the RMB rate even led to its depreciation, from 6.30 per dollar in April 2012 to 6.41 by August 2012. The currency, however, reverted to its earlier phase of appreciation, with the rate moving up from RMB 6.38 to RMB 6.31 between 24th July 2012 and 18th January 2013.

Differences relating to the exchange rate have continued to prevail across officials and think tanks in China and the US, with the latter holding China’s exchange rate management responsible for the continuing global account imbalances between the two countries. With pressures on China to appreciate the currency, the US Treasury even came to the point on in April 2010 of deciding whether China can be treated as a currency manipulator. The on-going dynamics of China’s foreign exchange transactions can be better understood by tracking the following major breaks in China’s exchange rate policy:

First, an end to the prevailing fixed RMB-dollar rate in 2005, which came largely with pressures from the US. Despite the twin surpluses between the current and the capital account, China was maintaining, since 1997, a fixed exchange rate at around 8.27 RMB per dollar. The change to managed floating, still supported by direct purchases of foreign currency which were flowing in abundance with the twin surpluses, led the RMB to rise immediately to 8.11 per dollar, with gradual appreciations since then. With appreciations continuing, the change to a floating RMB did not, however, lead to currency speculation till the third quarter of 2011.

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The Deep Sea is in Deep Trouble

Edward B. Barbier

In my book, Scarcity and Frontiers: How Economies Have Developed Through Natural Resource Exploitation, I chronicle how, since the Agricultural Transition 10,000 years ago, a critical driving force behind global economic development has been the discovery and exploitation of “new frontiers” of natural resources.  Natural resource scarcity both drives this process – as costs rise with scarcity we develop the technologies to exploit new resource frontiers – and it is a consequence – once frontiers are settled, developed and exploited, scarcity ensues again.

Today, we are embarking on rapid exploitation of a vast new frontier, the Deep Sea of the world’s oceans.

The Deep Sea begins at around 200 meters (m) depth, which is the limit at which sufficient sunlight penetrates the sea for photosynthesis to occur, and extends to nearly 11,000 m.   The area comprising the Deep Sea is vast, covering around 90% of the ocean floor.  This region consists of many diverse and interconnecting ecosystems, including abyssal plains, continental slopes, deep-sea canyons, manganese nodule fields, seamounts, cold water coral reefs and gardens, cold seeps and hydrothermal vents.  The structure, functioning and dynamics of Deep Sea ecosystems are complex and shaped by many factors, including the depth of the water column above them.  In addition, it is still poorly understood how these Deep Sea ecosystems interact with the rest of the ocean on which humankind depends for food, climate and ocean regulation, recreation and other ecosystem goods and services.

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The Right Wing Assault On America Is Working

James Crotty, Guest Blogger

Washington has been riveted by the sequester debacle. But rather than the terrible failure of government as portrayed in the media, in fact sequestration is a major victory for right wing forces in their long war to destroy the US version of social democracy.  The New Deal  was started in the 1930s and improved on through the mid-1970s, after which reactionary forces s began to have success in their efforts to initially weaken it and eventually destroy it. Their goal is nothing less than a return to the political and economic regime of the 1920s, when corporations and the rich paid little if any taxes, inequality was very high, Congress was bought and paid for by the rich, the trade union movement had been broken, and there was little if any regulation of business. Republican presidents since Reagan  have been most energetic in pursuit of these objectives, but Democratic presidents since Jimmy have moved in the same direction though more slowly than the Republicans. President Obama is no exception to this trend.

Under the Budget Control Act passed last year with the President’s cooperation, discretionary non-defense government spending (on everything but Social security, Medicare and Medicaid) as a percentage of GDP was  scheduled to  hit its low point since the early 1950s in ten years. (Obama had also offered to make significant cuts to Social Security and Medicare last year, but the Republicans would not do it because his offer also raised taxes on the super-rich) To get some idea about how deeply the immediate and longer term cuts under Sequestration will be, see

This budget “emergency” or “disaster” is a major victory for the right wing because it will sustain their onslaught against domestic government spending.  For them, this is not some big problem, but a dream come true. Moreover, most of the media  coverage has been so lame in its explanation of the causes of  this “crisis” that some polls show that an equal percentage of voters blame each party, so Republicans may not even be hurt politically by the outcomes.

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From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics

Thomas Palley, Guest Blogger

Many countries are now debating the causes of the global economic crisis and what should be done. That debate is critical for how we explain the crisis will influence what we do.

Broadly speaking, there exist three different perspectives. Perspective # 1 is the hardcore neoliberal position, which can be labeled the “government failure hypothesis”. In the U.S. it is identified with the Republican Party and Chicago school economics. Perspective # 2 is the softcore neoliberal position, which can be labeled the “market failure hypothesis”. It is identified with the Obama administration and MIT economics.

Perspective # 3 is the progressive position which can be labeled the “destruction of shared prosperity hypothesis”. It is identified with the New Deal wing of the Democratic Party and labor movement, but it has no standing within major economics departments, owing to their suppression of alternatives to orthodox theory.

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Green Keynesianism: Beyond Standard Growth Paradigms

Jonathan M. Harris, Guest Blogger

In the wake of the global financial crisis, Keynesianism has had something of a revival.  In practice, governments have turned to Keynesian policy measures to avert economic collapse.  In the theoretical area, mainstream economists have started to give grudging attention to Keynesian perspectives previously dismissed in favor of New Classical theories.

This theoretical and practical shift is taking place at the same time that environmental issues, in particular global climate change, are compelling attention to alternative development paths.  Significant potential now exists for “Green Keynesianism” : combining Keynesian fiscal policies with environmental goals.

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