Mark Sobel, a former top US Treasury Official criticized Trump’s remark regarding Chinese currency manipulation as “woefully wide of the mark”. And, Trump’s focus on bilateral balances as “silly”. And, to suspect a country of currency manipulation, there are criteria of “material ‘excessive’ current account surplus, an undervalued currency, and ample and rising reserves”.
In an article titled “Trump wide of mark on ‘manipulation‘”, Sobel point to facts that “China’s current account surplus is falling to under 1% of GDP. The renminbi, hit by capital outflows between early 2015 and the end of 2016, rose sharply against the dollar up to April 2018. The renminbi trade-weighted index rose too. Since then, the renminbi has fallen on both measures, but the depreciation reflects the dollar’s strength across the board. There is little evidence of more than scant Chinese foreign exchange market intervention.”
He noted “a currency manipulating country should have a significant current account surplus”. And, “the US Treasury in its foreign exchange reports uses a 3% of GDP threshold.” While a currency manipulating country might also have an “undervalued currency” one should “look at a country’s real effective exchange rate, not its bilateral dollar rate.” Additionally, the country may intervene heavily in the markets, “buying dollars to hold its currency down, resulting in an increase in its foreign reserve holdings.” But there might be “good reasons” to do so such as building up of reserves. There are many useful gauges of reserve adequacy to examine – reserves/GDP; reserves/short-term maturing debt; reserves/imports.
Sobel also completed that “a focus on bilateral balances is silly, even if the US Treasury is required to do so by statute and the president seems obsessed with them. Such an emphasis neglects to consider that certain countries specialize in certain goods and hold comparative advantage in such spheres.”
Mark Sobel is US Chairman of OMFIF. He is a former Deputy Assistant Secretary for International Monetary and Financial Policy at the US Treasury and until earlier this year US representative at the International Monetary Fund.
RBA minutes: El Niño risks increased, no strong case for a near term rate move
Minutes of August RBA meeting noted that drought conditions affected the timing of crop harvest. And the “probability of an El Niño event, which would typically be associated with low rainfall in eastern Australia, had increased over 2018″. That implies ” downside risks to the forecasts for farm output and exports.”
Otherwise, the minutes came in basically as expected. They noted that global economic expansion continued but “direction of international trade policy in the United States continued to be a source of uncertainty for the global outlook.”
Australian Dollar had “depreciated a little” against the US dollar. However, “in trade-weighted terms it had remained within its trading range of the previous two years.”
Domestic forecasts were largely unchanged. GDP is projected to be a little above 3% over 2018 and 2019. Inflation would dip “temporarily” in September quarter due to some administered prices. But it’s expected to be at around 2.25% in 2020.
On interest rates, the next move “would more likely be an increase than a decrease”. But there was “no strong case for a near-term adjustment”.
Full minutes here.