That’s the title of my new Mercatus working paper. Here’s the abstract:
Concern over currency manipulation plays a major role in international economic diplomacy. Unfortunately, the concept is not well defined, and the most coherent explanations apply to a concept more accurately termed “saving manipulation,” as it has little to do with market exchange rates. I argue that the costs of currency manipulation are far lower than they are widely assumed to be and that the optimal response is either to do nothing or to boost domestic saving rates.
Some of the ideas first appeared in this blog, but not all. Comments would be appreciated.
PS. There’s also a shorter policy brief.
READER COMMENTS
P Burgos
Feb 18 2020 at 2:24pm
I only read the policy brief. Maybe I missed it, but was there any discussion of why nations like Japan or China would want to increase their domestic savings rate? I have read that part of why China has been able to gain so many manufacturing facilities is that China’s policies (including its saving policies) have essentially been subsidizing manufacturing at the cost of the incomes of ordinary Chinese folks.
The reason I mention this is that it seems to me that the fear motivating complaints about currency manipulation are about a country running a successful mercantilist economic policy and by doing so shifting high value industry agglomerations from one part of the world to another.
P Burgos
Feb 18 2020 at 2:30pm
I see the paragraph now, though the citation (no. 20), didn’t appear to link to any econometric research supporting the assertion that currency manipulation contributed little to the “China shock.”
Thaomas
Feb 19 2020 at 1:12pm
The “cost” to the US of the strong dollar/trade deficit comes from the underlying structural federal deficit which reduces the savings rate and leads to lower investment and higher future income. Trade restrictions do nothing to increase investment, just lower real income, so they just exacerbate the underlying problem. Of course the US benefits from the inflow of foreign savings to “finance” the deficit, but the offset is not complete.
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