From Asia Times:
Not since the United States floated the dollar in the 1970s and threw the Bretton Woods system on the scrap heap of history has the management of exchange rates so captured the attention of economists and national politicians as China’s undervalued yuan does now.
Then, as now, all manner of polemics and the weight of established authority argued that governments should manage currency-exchange rates, much as they attempt to fix prices, for example of sugar or petroleum, supposedly to serve the greater good.
We hear about China’s weak financial system, the pent-up demand for US dollars in China, and the need for exchange-rate stability in developing countries. However, we should always be wary when professors, who enjoy the absolute protection of tenure, and corporate leaders and bankers, whose investments benefit from government meddling in markets, argue that prices should be regulated in the public interest. [Full Text]
Peter Morici is a professor at the University of Maryland School of Business and former chief economist at the US International Trade Commission.