With President Trump’s 100th day in office fast approaching, his administration has already delivered on some of his key economic promises, including slashing regulations, instituting a federal hiring freeze, and approving the Keystone XL pipeline. And now that the President is thoughtfully considering the impact of our monetary policy, he is also one step closer to making good on another promise — creating soaring job creation.
After last week’s well-received meeting with Chinese President Xi Jinping, Trump announced that he was no longer planning to label China a currency manipulator. Although the President’s currency manipulation rhetoric was a shrewd negotiation tactic, Trump’s willingness to move past this point is a strong signal he is highly engaged on monetary policy. As RealClearMarkets editor John Tamny noted:
China chose to peg its currency to the dollar in 1994 precisely because it wanted the yuan to be strong and stable. It’s been to avoid devaluation that China has pursued a currency arrangement that countless countries around the world similarly pursue. The world, for all intents and purposes, is on a dollar standard; China’s dollar standard very explicit. The problem all this time has been the U.S. Treasury. When the dollar is weak, so are the myriad non-U.S. currencies pegged to the dollar weak. When the dollar is strong, so are those same currencies strong.
As this paragraph illustrates, when the U.S. bashes China for having a “weak currency,” we are merely projecting our monetary sins onto others. The U.S. dollar is the world reserve currency — its ever-fluctuating value creates havoc among nations who peg their currency to ours.
Far from being the chronic currency devaluers some accuse them of, China’s yuan has actually appreciated over the past two decades. As CNBC contributor Larry Kudlow noted:
Since the original link to the dollar back in 1994, the yuan is up 40% or 50% and in the last year [they’ve] spent a trillion dollars defending the yuan so I’m glad he saw that. That’s a fact based changed [sic] and [I’m] glad he did that. That reversal was good.
Since our own monetary mismanagement is largely responsible for the fluctuating yuan, President Trump’s foresight in avoiding a currency war with China is a promising sign he understands that the U.S. exports bad monetary policy onto the rest of the world. And his decision is all the more important since China is our largest trading partner.
Hopefully President Trump’s thoughtful consideration of the impacts of our monetary policy is a sign his administration is prepared to get it ‘right on the money.’ It’s time to close the book on this era of job-sapping currency fluctuation and return to a dollar as stable and good as gold.
Photo credit: Gage Skidmore