Snow lauds Japan, quiet on currencies
Reviewed by Hitoshi URABE
"Snow lauds Japan, quiet on currencies "
(by Reuters) CNN
Contrary to anticipations and expectations rumored before his visit, US Treasury Secretary Snow did not, at least publicly, pressure Japan not to intervene in the market in an effort to keep yen from appreciating.
It seems to have begun in July, in Bali after the ASEM meeting, Japan's Finance Minister Shiokawa said that it might be productive for China itself as well if yuan were to appreciate. Mr Shiokawa's true intention was never clear, but this was obviously interpreted as the Finance Minister pushing for yuan to be revaluated, especially from some Japanese firms who had been somewhat convinced that increased imports from China induced by low yuan was eroding their businesses.
Mr Greenspan, the Federal Reserve Governor, in the meantime, was explaining to the members of the Banking Committee in Congress that it would be, from economy's standpoint, beneficial for China itself to relax its foreign exchange regulations. Whatever being Mr Greenspan's real intention, this was interpreted as he would like to see value of yuan to rise, which was hyped by some executives in certain businesses and union members who had had the mind set of anything imported is depriving their jobs. During the course, they picked up yen, along with yuan, to accuse of being deliberately undervalued.
Mr Snow, an experienced businessperson, did not press on Japan to stop market interventions, or he did not condemn Chinese for maintaining their yuan at current levels. Reportedly, all he said was China perhaps should seek for more liberal foreign exchange system. Admittedly, there may have been political considerations. As an election for chairmanship of the ruling Liberal Democratic Party coming up, for the US to show support for Mr Koizumi being reelected, Mr Snow may have been somewhat softer than otherwise.
Exchange rate is a blunt phenomenon based on delicate grounds. It has been proven so many times through history that artificial control is effective only so much, limited inversely proportionate to the sophistication of the economy; which means it becomes less feasible as the economy grow and develop. Intentions to manipulate, through interventions and other means, may slightly alter the speed and magnitude of fluctuations, but it could backfire and damage the economy, and reputation of the government.
Also, it has been well documented that the level of exchange rate has very little, if at all, to do with employment.
In fact, there have been analyses indicating that it will be for China's own benefit to gradually liberalize its foreign exchange restrictions so that the built-in mechanism of exchange rate fluctuation could help adjust its own economy. And for Japan, a higher yuan would increase the cost factor for many Japanese firms, thus would not be beneficial for Japanese industry as a whole.
Foreign exchange rate in modern global economy is not something able to utilize as a means to realize a policy except in a very limited adjustment phase, but largely a result of economic activities. As for those naive executives and workers, it is suggested that they either study thoroughly the mechanism of foreign exchange before making noises, or stop grumbling and get to work to increase productivity.