The Fed and Congress have told China to revalue its currency, the renminbi, upward by 20 per cent. This would oblige the Chinese government and its central bank to absorb a loss of half a trillion dollars – over $500 billion – on the $2.6 trillion of foreign reserves it has built up. These reserves are not merely from exports, much less exports to the United States. They are capital flight by U.S. money managers, Wall Street arbitragers, international speculators and others seeking to buy up Chinese assets. And they are the result of U.S. military spending in its bases in Asia and elsewhere – dollars that recipient countries turn around and spend in China.
Chinese authorities have tried to make it clear that what they object to is the U.S. policy of creating “electronic keyboard credit” at one quarter of a percent (0.25 per cent) to buy up higher yielding assets abroad (and nearly every foreign asset is higher yielding). The Group of 20 in Seoul Korea last week accused the United States of competitive currency depreciation and financial aggression, and countries stepped up attempts to shun the dollar and indeed, to avoid running trade and payments surpluses as such.link
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