Forget China, the U.S. is one of the worst currency manipulators in the world according to Dr. Xiang Songzuo.
Worse yet, the resultant dollar hegemony has allowed the country to act as a giant bank basically, paying a paltry interest rate to hold the world’s savings while earning profitable spreads reinvesting it.
To be fair, America’s ability to earn a spread above its liabilities has been observed and analysed by many others. Pre-crisis this was actually used as a bullish case for the country, by arguing that the U.S. should borrow more from the world.
Yet it’s interesting that this Chinese professor has framed the issue as a result of massive, long-standing currency manipulation. It’s also nice to see some quantification of America’s ‘spread’ highlighted:
China Stakes: The estimates of two scholars, Pierre-Olivier Gourinchas and Helene Rey, are well known. After a detailed calculation, they said the average returns of US-owned foreign assets from 1952 to 2004 was 5.72%, while the average returns of US assets held by other countries was 3.61%, the difference of 2.16 percentage points being the equivalent of trillions of dollars.
What most interests me is that the two scholars separated the fixed exchange rate era from the floating exchange rate era in their calculations, and fully demonstrated that the floating exchange rate system has conferred huge benefits on the US. During the Bretton Woods fixed exchange rate period (1952~1973), the average return on foreign assets for the US was 4.04%, while the average yield of US assets held by foreign countries (US external liabilities) was 3.78%, and the difference between the two was only 0.28 percentage points. During the floating exchange rate period studied (1973~2004), the average returns of US-held foreign assets increased to 6.82%, while the average yield of foreign-held US assets decreased to 3.50%, with the gap ballooning to 3.32 percentage points.
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