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Thursday December 7th, 2023

US false claims of China currency manipulation ‘purely political’, act of war: Hanke

ECONOMYNEXT – US claims that China is manipulating its currency is "purely political" amounts to an act war and is a repeat of false mercantilist acts that has failed in the past, a top US economist has said.

"In a purely political move, the Trump administration (read: the U.S. Treasury) has branded China as a currency manipulator," Steve Hanke, professor of applied economics at The Johns Hopkins University, Baltimore and a former advisory to President Reagan wrote in his column at Forbes, a financial magazine.

"This is an act of war. After President Trump announced that even more tariffs would be imposed on China, the markets took the value of the Chinese yuan down a notch or two.

"So, who was “manipulating” the yuan, Beijing or Washington? Well, it looks like Washington is engaging in yet another Asian currency war.:

US has employed similar tactics in the past against Japan when a trade deficit expanded and against China itself when the country was on a Silver standard and US was on Gold.

When Bretton Woods broke up in 1971 (under Bretton Woods US mercantilists could not falsely claim ‘undervaluation’ because currencies were supposed to be fixed), the Yen was about 360 to the US dollar.

Mercantilists  blamed an ‘undevalued’ yen for its trade deficit, which was caused by a so-called income effect, mainly of the US borrowing abroad and excessive spending domestically or an ‘income effect.’

Mercantilists think there is something "wrong" with a trade deficit.

"To “correct” the so-called problem, the U.S. demanded that Japan adopt an ever-appreciating yen policy," Hanke said.

"The Japanese complied and the yen appreciated against the greenback from 360 in 1971 to 80 in 1995 (and 106, today). But, this didn’t close the U.S. trade deficit with Japan. "

The currency appreciation generated deflation in Japan but it did not reduce the trade deficit.

By 1991, 60 percent of the US trade deficit was due to Japan.

"Today, the U.S. is playing the same baseless blame game with China," Hanke wrote.

"And why not? After all, China’s contribution to the overall U.S. trade deficit has surged to 47 percent."

Hanke points out that even before fiat money, the US had manipulated currencies to cause economic chaos in China.

Under a gold or silver standard (the monetary anchor is the price of gold or silver) currencies on the same standard do not move if the central bank does not give large amounts of printed money as credit. 

However when the price of the anchor metal changes (gold or silver prices) the currencies will move and it has nothing to do with trade.  Sri Lanka’s rupee used to change against sterling when silver to gold parity changed during the currency board era.

"In the early 1930s, China was still on the silver standard, and the United States was not," explained Hanke.

"Accordingly, the Chinese yuan-U.S. dollar exchange rate was determined by the U.S. dollar price of silver.

"During his first term, President Franklin D. Roosevelt delivered on his Chinese currency stabilization “plan.” It was wrapped in the guise of doing something to help U.S. silver producers and, of course, the Chinese.

Using the authority granted by the Thomas Amendment of 1933 and the Silver Purchase Act of 1934, the Roosevelt Administration had bought silver.

Helped by silver bulls, the price of silver had gone up 128 percnet from 1932 to 35.

"Bizarre arguments contributed to the agitation for high silver prices," Hanke noted.

"Silver interests asserted that higher silver prices — which would bring with them an appreciation of the yuan against the U.S. dollar — would benefit the Chinese by increasing their purchasing power."

"But, things didn’t work as Washington advertised," he said. They worked as “planned,” however.

"As the dollar price of silver shot up, the yuan appreciated against the dollar. In consequence, China was thrown into the jaws of the Great Depression.

"In the 1932-34 period, China’s gross domestic product fell by 26% and wholesale prices in the capital city, Nanjing, fell by 20 percent.

"Realizing that all hope was lost, China was forced to effectively abandon the silver standard on October 14, 1934, though an official statement was postponed until November 3, 1935."

"The abandonment of silver spelled the beginning of the end for Chiang Kai-shek’s Nationalist government.

"America’s “plan” worked like a charm — Chinese monetary chaos ensued. This gave the communists an opening that they exploited — one that contributed mightily to their overthrow of the Nationalists.

"Today’s currency war with China promises to deliver what currency wars always deliver: instability and uncertainty."
 

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COP28 sees new era for climate action with $57 bln pledge; Sri Lanka’s proposals need approval

ECONOMYNEXT – The 2023 United Nations Climate Change Conference (COP28) has witnessed governments, businesses, investors, and philanthropies announcing support of over $57 billion across the climate agenda in just the first four days of the global event with eight pledges and declarations receiving historic support.

After a historic deal to operationalize a fund for climate impact response on the first day, announcements have poured in across the entire climate agenda, including on finance, health, food, nature, and energy.

On climate finance, the COP28 host United Arab Emirates launched a $30 billion catalytic fund, ALTÉRRA, with an emphasis on unlocking private finance across the Global South.

The host nation also has announced $200 million for SDRs and $150 million for water scarcity.

The World Bank has announced an increase of $9 billion annually to finance climate-related projects, while the first two days of COP28 saw $725 million in pledges after a historic response to loss and damage was operationalized.

Eight new declarations have been announced which are expected to help transform every major system of the global economy.

These include the first ever declarations on food systems transformation and health, plus declarations on renewable energy and efficiency, as well as initiatives to decarbonize heavy emitting industries.

The eight declarations are:

  • The Global Renewables and Energy Efficiency Pledge has been endorsed by 119 countries.
  • The COP28 UAE Declaration on Agriculture, Food, & Climate has received endorsements from 137 countries.
  • The COP28 UAE Declaration on Climate and Health has been endorsed by 125 countries.
  • The COP28 UAE Declaration on Climate Relief, Recovery & Peace has been endorsed by 74 countries and 40 organizations.
  • The COP28 UAE Declaration on Climate Finance has been endorsed by 12 countries.
  • The Coalition for High Ambition Multilevel Partnerships (Champ) Pledge has been endorsed by 64 countries.
  • The Oil and Gas Decarbonization Charter has been endorsed by 51 companies, representing 40 percent of global oil production.
  • The Industrial Transition Accelerator has been endorsed by 35 companies and six industry associations, including World Steel Association, International Aluminium Institute, Global Renewable Alliance, Global Cement and Concrete Association, Oil and Gas Climate Initiative, International Air Transport Association.

Three additional declarations will be announced in the coming days on hydrogen, cooling, and gender. The number of countries supporting these declarations and pledges is growing and demonstrates an unprecedented level of inclusivity at this COP.

Sri Lanka President Ranil Wickremesinghe announced three new proposals: Climate Justice Forum (CJF), Tropical Belt Initiative (TBI), and International Climate Change University in Sri Lanka.

However, the proposals are yet to get approval from the general UN body though the island nation’s authorities expect wide support for the moves.

“What we have done is to talk to countries about the initiatives and launch them. Next step is for them to be formally recognized by the main body,” Ruwan Wijewardena, the Senior Advisor to President Wickremesinghe on Climate change, told Economy Next.

Breakdown of financial pledges and contributions so far:

  • Loss and Damage: $725 million
  • Green Climate Fund: $3.5 billion (increasing second replenishment to $12.8 billion)
  • Renewable Energy: $2.5 billion
  • Technology: $568 million
  • Methane: $1.2 billion
  • Climate Finance: Over $30 billion from UAE (plus $200 million in Special Drawing Rights and an increase of $9 billion annually from the World Bank)
  • Food: $2.6 Billion
  • Nature: $2.6 Billion
  • Health: $2.7 billion
  • Water: $150 million
  • Relief, Recovery and Peace: $1.2 billion
  • Local Climate Action: $467 million (Dubai/Dec 6/2023)
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Sri Lanka to start international tourism branding campaign

ECONOMYNEXT – Sri Lanka will soon start a tourism international marketing campaign under the theme ‘You will come back for more,” Tourism Minister Harin Fernando said.

“We have not had a branding campaign for 15 years,” Fernando told parliament. “A campaign has been developed by Ogilvy.

“It will help us reach the target of 2.3 million tourists next year.”

This year Sri Lanka is expecting a 1.5 million tourists with close to 1.3 million reached by November.

About 6,000 tourists are now coming each day, at the moment he said.

On December 10, three cruise ships are due. (Colombo/Nov06/2023)

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Sri Lanka 3-month Treasuries yields fall

ECONOMYNEXT – Sri Lanka’s Treasury bill yields eased across maturities with the tree month yield falling 19 basis points to 14.67 percent, data from the state debt office showed.

A total of 185 billion rupees in bills were sold, with sharply lower than offered volumes in 12-months sold.

The debt office offered 55 billion rupees of 3 -month bills and sold 87 billion.

92 billion rupees of 6-month bills were sold after offering 60 billion at 14.38 percent down 14 basis points.

Only 5.2 billion rupees of 12-month bills were sold after offering 70 billion rupees, at 12.88 percent, down 01 basis point. (Colombo/Dec06/2023)

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