The Greatest Currency Manipulator (Part I)


Rod P. Kapunan1

Part I

Losing Control of the International Financial System

Looking now at the global economic landscape, in terms of contribution to the global economic growth by GDP from 2014 to 2015, China’s share was 51.3 percent, the US 30.9 percent, while India 6.6 percent.  The percentage share of the US has significantly shrunk while the rest like the EU, China and Russia and India are fast catching up.  As of January 26, 2015, the US has an outstanding debt of $13.62 trillion, with China holding $1.3 trillion and with Japan about $1.2 trillion.

Countries deeply in debt to international financial institutions sometimes incur  default in their payment due to high interest rate, are egged on to devalue their currency, and has to  kowtow to their dictates to secure  developmental funding for their projects.  The creation of the Asian International Infrastructure Bank (AIIB) and the New Development Bank formerly known as the BRICS Bank, now serve to compete with  the US and European-controlled financial institutions.

That could break the financial monopoly of the US and its Western partners.    The income that has been riveted to the coffers of the US-controlled World Bank, the European-controlled International Monetary Fund and the US-Japan-controlled Asian Development Bank through a system of syndicated usury would soon dry up.  Most significant, they could weaken fast the financial grip of WB, IMF and ADB that at present favours the West.

The charge by President-elect Donald Trump that China is the greatest currency manipulation, and the reason why it achieved phenomenal economic growth is completely misleading.   To begin with, the US has been in the business of manipulating its currency long before China opened up its economy to the world.  The US war of aggression in Vietnam resulted in heavy expenditures and left it deeply in debt.

Detaching the Dollar from the Gold Standard

Because the US dollar was fast losing its value, and traders were converting their dollars to gold, President Nixon in 1971 announced that the US would no longer value the dollar to the price of gold.  The US dollar would from thereon be governed by money supply.  That marked the beginning of the monetarist policy enunciated by Milton Friedman.

The so-called “Nixon shock” put the world economy on a tailspin.   Many countries had to adjust the value of their currency to the dollar.  Almost instantly, the US dollar became the universal currency.    Countries were compelled to scrap their anti-usury laws because the value of goods was measured by the supply of money in the market, and not by the supply of goods.  Invariably, lending substituted production.

The spurt caused by the new monetary policy saw for a while the recovery of the dollar.  As observed, the dollar moved in a parallel but divergent direction.  Consequently, the value of exports by exporting countries, mostly agricultural and mineral products, began to decline, while the value of their imports increased.  Many failed to anticipate that increasing the value of the dollar against their own currency could push the demand for higher wages. As one would say, inflation is an incurable disease to a money-supply driven economy.

The Americans were proud of their mighty dollar not knowing that it would unlock the door for the migration of US industries to other countries, particularly to China, to avail of the lower production cost.  China held on to the low value of its renminbi.   Many took advantage of the situation to capture a wider share of the market. Thus, from an infant manufacturing economy, China matured fast to become a technology driven economy.

The Chinese looked at the pattern differently.  First, the low value of the renminbi would discourage the importation of luxury goods.  Second,  the cost of living in China including the cost of wage served as incentive to foreign investment.  Third, that promoted import substitution, and later on in the manufacture of originally-made Chinese products.

The Chinese cannot be accused of regulating their currency much that it was the US that invented this economic malpractice in 1971.  By allowing the dollar to be revalued they themselves created a worldwide economic havoc because it forced the deregulated interest rates that made lending and the trading of derivatives lucrative.

When China opened its economy to the world market in 1978 it was simply responding to the economic rules laid down by the monetarists.   China rightly anticipated that to maintain the value of the renminbi would pave the way for the massive migration of production plants from the West to the East.  It was foolish for China to adopt the money supply economy anticipating it could cause a serious disruption in their economic timetable of becoming a manufacturing economy capitalizing on its enormous manpower.   Many US companies even took that opportunity to earn more because low production cost allowed them to sell their China-manufactured goods to earn profitable margin abroad.

China did not make an issue against those countries that took advantage of their economic condition then, just as it did not make an issue when the US detached their currency from the gold standard to allow it to increase its value against the other currencies.   In fact, had China caved in to revalue its currency there would have been no foreign investment that created the economic miracle and made it the factory of the world.

Pushing Japan to a Long Drawn Recession 

The continuing inflation is decomposing fast the US economy. The US now has to impose an unprecedented low  interest   rate on borrowings. The US Federal Reserve wants to maintain the value of the dollar, not to say of it as a form of currency manipulation.  But economics has its own way of exacting its own price.

By 1980 onward, the US was already suffering from huge trade deficit with Japan.  There was resentment particularly on the imports of Japanese made vehicles. To stem the serious trade imbalance, the US applied various techniques that resulted in a long drawn economic recession for Japan until it was finally dislodged as the second largest economy in the world.  First, the US pressured Japan to ease its ban on the imports of agricultural products, particularly beef and rice.    Second, since US automakers could not compete, US trade negotiators sought to impose high tariff on Japanese made cars. (

1The writer is a regular columnist at the Standard Today under the by-lined “Backbencher.”   He is also the author of the bestselling book on labor contractualization titled “Labor-only Contracting in a ‘Cabo’ Economy; a historical events that preceded the declaration of martial law titled “Reflections on Martial Law: Saving the Republic”; and a biographical account of the achievements and commentaries in the political career of President Marcos titled “The Revolution from the Center: A Quest for Peace and Progress.”

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