China has spent the last few months throwing stones from its glass house, criticizing the US for its deficits while benefiting from the weakening dollar by virtue of its virtual dollar-peg. Well, it looks like the jig is up. In what looks like a coordinated pressure campaign, the US, the EU and Japan have all raised concerns over China’s unwillingness to let the Yuan strengthen.
During the deaths of the global crisis, the Big 3 left well enough alone, mindful of potential unrest in China if the economy were to crash. Now that the worst of the crisis has passed, the focus is turning back to leveling the global playing field.
China was singled out in the Treasury’s semi-annual currency report and received attention from Geithner in a TV interview last night. Talk of the EU selling a high-powered delegation to Beijing made the rounds yesterday and Japan this morning suggested that it and China have a duty to support the dollar given their huge currency reserves.
The thinking goes that if China allows its currency to strengthen, it will end the need for intervention from other Asian central banks and cut the diversification of that USD intervention into EUR. Net/net, it would allow the dollar to recover versus its floating counter parts and weaken against China, where it should.
