Categories
Uncategorized

Here we go…

If the Chinese have any sense, they will let their currency appreciate now.

Update: Willem Buiter is also concerned about the looming threat to world trade that this would seem to imply. He displays an extreme scepticism about whether nominal exchange rates ever matter for the trade balance, writing that

only the most bone-headed of ultra-Keynesians believes that a country can influence its effective real exchange rate in a lasting manner by managing/manipulating its effective nominal exchange rate, let alone some bilateral nominal exchange rate.

I guess the key phrase here is “in a lasting manner”, and I defer to Philip about what sort of time scale this implies empirically. I guess that not all economists will agree with Buiter on this particular point. But the broader point, which is critically important, is that we can’t take the maintenance of an open trading system for granted.