The ‘Nuclear Option’: Currency Edition

As someone who follows international economics pretty closely, I’m surprised I didn’t find this Dean Baker op-ed until today. I’ve previously asked what the United States could do to convince the Chinese government to let the yuan appreciate. Baker doesn’t so much want to convince China, but rather beat China at its own game. He suggests that the US Treasury set a dollar-yuan exchange rate higher than the Chinese government and creating an incentive for Chinese firms and other individuals to use the new exchange rate.

I’m going to file this one under “interesting wonky idea that would NEVER, EVER happen”. The Chinese government flipped when the United States imposed a tariff on tires; imagine the reaction to the United States creating a new exchange rate. I’m highlighting Baker’s op-ed not because I think it’s a good idea, but proof that the problem of the yuan peg is not an easy one to solve and will require some creative thinking. Even if some thoughts won’t work.

 

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