Why Currency Manipulation in China May Actually Be a Good Thing

Speculation that China actively manipulated its currency against the dollar has put a strain on U.S.-China relations in recent years. Former Head of the IMF’s China Division Eswar Prasad acknowledges that while China likely intervened in its currency, since mid-2014, it has been to the benefit of the U.S. economy. “China is really doing the U.S. a favor right now by keeping its currency relatively stable,” Prasad tells GLG, more so than if its currency were determined wholly by market forces. By trying to prevent its currency from falling too fast, China is actually creating a more level playing field. GLG sits down with Eswar Prasad to discuss U.S.-China relations, currency manipulation, and why nobody wants a trade war.

Eswar Prasad is the Tolani Senior Professor of Trade Policy and Professor of Economics at Cornell University. He is also a Senior Fellow at the Brookings Institution, where he holds the New Century Chair in International Economics, and a Research Associate at the National Bureau of Economic Research. Prasad is also the former Head of the IMF’s China Division.

Prasad’s latest book, Gaining Currency: The Rise of the Renminbi, was published by Oxford University Press in October 2016. He is also the author of The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global Finance (Princeton University Press, February 2014) and Emerging Markets: Resilience and Growth Amid Global Turmoil (with M. Ayhan Kose; Brookings Institution Press). His extensive publication record includes articles in many collected volumes as well as top academic journals. He has co-authored and edited numerous books and monographs on financial regulation as well as China and India.

Prasad has testified before the Senate Finance Committee, the House of Representatives Committee on Financial Services, and the U.S.-China Economic and Security Review Commission. He was a member of the analytical team that drafted the 2008 report of the High-Level Committee on Financial Sector Reforms set up by the Government of India. He also serves on an Advisory Committee to India’s Finance Minister and is the Lead Academic for the DFID-LSE International Growth Center’s India Research Program. He is the creator of the Brookings-Financial Times world index (Tracking Indexes for the Global Economic Recovery; www.ft.com/tiger).

His op-ed articles have appeared in the Financial Times, Foreign Policy, Harvard Business Review, International Herald Tribune, New York Times, Wall Street Journal, and Washington Post. He has made frequent appearances on BBC, Bloomberg, CNBC, CNN, C-SPAN, Fox, NBC, NPR, PBS, Reuters, and other radio and television channels. Prasad is also a Research Fellow at IZA (Institute for the Study of Labor, Bonn). He has served as the co-editor of the journal IMF Staff Papers, on the editorial board of Finance & Development, and was the founding editor of the quarterly IMF Research Bulletin.

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