A Subsidy -- Not
24 March 2007
The Editor, New York Times
229 West 43rd St.
New York, NY 10036
To the Editor:
Like many others, Peter Morici asserts that "China's purchase of American dollars and securities to keep the yuan cheap creates more than a 20 percent subsidy on China’s exports" (Letters, March 24). This "subsidy" is an illusion.
Beijing can artificially lower the value of the yuan against the dollar only by increasing the supply of yuan relative to dollars - that is, by inflating the yuan. Such inflation, however, eventually raises the nominal prices of Chinese goods and thereby offsets the lower price of the yuan.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
The Editor, New York Times
229 West 43rd St.
New York, NY 10036
To the Editor:
Like many others, Peter Morici asserts that "China's purchase of American dollars and securities to keep the yuan cheap creates more than a 20 percent subsidy on China’s exports" (Letters, March 24). This "subsidy" is an illusion.
Beijing can artificially lower the value of the yuan against the dollar only by increasing the supply of yuan relative to dollars - that is, by inflating the yuan. Such inflation, however, eventually raises the nominal prices of Chinese goods and thereby offsets the lower price of the yuan.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Saturday November 10, 2007 at 5:09pm