Yuan is too cheap against dollar

Japan has propped up its economy by purchasing dollars and permitting private investors to borrow yen at near zero interest rates and trade those for dollars-denominated Treasury securities.

Now, Tokyo signals it will not let the yen drop much below 90 per dollar when a market equilibrium value would be closer to 80.

Other Asian export powerhouses have practiced variants of the Chinese and Japanese currency model too.

It is no wonder the dollar was so strong for so long.

Now, with Americans no longer able to borrow madly to prop up global growth, protests are shouted around the world about a “cheap US dollar.”

The hard facts are the dollar became overvalued earlier in this decade.

If China and others ceased subverting currency markets, the yuan would rise at least 40 per cent, other Asian currencies would appreciate too, the US trade deficit would shrink and the new demand for American goods would rocket the US economy.

Morici is a Professor at the Smith School of Business, University of Maryland.