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Mix-Ansicht- für alle Devisen-Cracks, welche morgen ins Büro fahren......................... - Emerald, 20.07.2003, 19:12
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-->David DeRosa, president of DeRosa Research & Trading, is an adjunct finance professor at the Yale School of Management and the author of"In Defense of Free Capital Markets." The opinions expressed are his own.
U.S. Treasury Tells Japan to Hammer the Yen: David DeRosa
July 20 (Bloomberg) -- U.S. Treasury Secretary John Snow may have declared open season on the yen by telling Japan he would not stand in its way if it wanted to lower its value by intervention.
Snow declined to criticize Japan for repeatedly intervening in the foreign exchange market to keep the yen from appreciating so it can gain an export advantage.
``Japan is going through a tough set of things, and as they deal with those things we are not going to be critical of them at all for their actions,'' Snow said. And he added: ``They need a strong export sector.''
To be fair, Snow also expressed a desire that Japan keep intervention to a minimum, and that in the long run it allow market forces to determine the exchange rate. In the short run, manipulating the yen is fine with him.
This must have been music to the ears of Japan's Ministry of Finance, an institution that's notorious in foreign exchange markets for interfering with the yen's value.
There's at least one problem with what Snow said. He's advising the Japanese to violate the articles of agreement of the International Monetary Fund, of which both the U.S. and Japan are signatories.
Article 4, Section 1, subsection (iii) states that members must ``avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members.''
`Dear John'
And by coincidence, the IMF's rules came up only the day before in a letter Snow received from four U.S. Senators, two Democrats and two Republicans. The Senators asked Snow to investigate whether China was breaking IMF rules by manipulating the yuan to encourage exports.
The letter contains an interesting passage: ``As we understand it, World Trade Organization and International Monetary Fund rules prohibit currency manipulation for the purpose of gaining an export advantage.''
Not so fast, senators. In what sense is the yuan being manipulated? The truth is that the yuan isn't manipulated; it's pegged to the U.S. dollar.
The dollar's recent weakness has hurt the yuan because the two currencies are fused. The U.S. dollar has weakened by about 25 percent against the euro since February 2002. Blame the dollar, not the yuan, for weakness in both currencies.
If China's exchange agreement constitutes manipulation, then so would every other fixed exchange rate regime. Surely that's not what the IMF's Article 4 was meant to imply. In fact, the IMF at times has supported fixed exchanges.
Weaker Is Better?
But no matter what a nation's foreign exchange regime is, it seems there's always a preference for its currency to weaken. That's why you don't find any senators writing to Snow to complain about the weaker dollar.
And that asymmetric logic tends to prevail. A brief exception is contained in the senators's letter to Snow. They actually tried to argue that China should welcome a higher value for the yuan:
`` A stronger yuan would likely be helpful to certain sectors of China's economy by lowering the cost of imports, and it would help Chinese consumers suffering under artificially high prices.''
Imagine the reaction in Japan if Snow had given this response to the question about Japanese intervention?
It would have been a correct response, but it's doubtful that either China or Japan will want to embrace a higher exchange rate, not now and not ever.
Last Updated: July 20, 2003 00:11 EDT
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