How China’s ‘Currency Manipulation’ Enhances the Global Role of the U.S. Dollar

This is the great irony of the aftermath of the global financial crisis. China, Russia, and France want to lead the charge to strip the United States of its exorbitant privilege, and Washington resists. And yet, if Washington were to take steps to prevent foreigners from accumulating U.S. assets, the result would be a sharp contraction in international trade. Surplus countries, like Germany and China, would be devastated, but the U.S. current account deficit would fall with the reduction in net capital inflows. As it did, by definition the excess of U.S. investment over savings would have to contract. Because U.S. investment wouldn’t fall, and in fact would most likely rise, savings would automatically rise as lower unemployment caused GDP to grow faster than the rise in consumption.



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