Bernanke blasts China for currency manipulation

In a speech Friday, Fed chief Ben Bernanke was unusually critical of China for its currency manipulation and trade surplus. Behind the war of words is a clash of civilizations: freedom vs. authoritarian control.

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AFP PHOTO/Frederic J. BROWN/NEWSCOM
An illustration of Chinese currency 100 yuan notes issued by the People's Bank of China, fronted with an image of former Communist party leader Mao Zedong.

A ongoing war of words between China and the US over trade and currency escalated Friday in an unusually strong speech by Fed Chairman Ben Bernanke.

The world’s top central banker – not someone normally this direct – mentioned China by name in pointing a finger at those countries that undervalue their currencies in order to boost exports.

Speaking at the European Central Banking Conference in Germany, Mr. Bernanke even blamed China for about half of the $5 trillion in surplus money accumulated worldwide by such offending export-oriented countries.That surplus is causing an imbalance which is – and here’s the jab from the Fed chief – preventing a global economic recovery.

Unless China lets the value of its currency float on world markets, the US will need to take strong measures to boost its own economy. The Fed did just that last week by starting to buy $600 billion in US Treasury bonds, an act known as “quantitative easing” which lowers US interest rates.

Bernanke’s strong words may hint that President Obama is about to officially declare China a currency manipulator under US law, an act that might likely trigger tough measures against Chinese imports into the US.

Mr. Obama has failed so far to persuade other trade-deficit countries like the US to join him in collectively pressuring China to back down.

So far, Beijing is hanging tough. It pleads that it needs the export money from an undervalued currency to lift its peasants out of poverty and to preserve social order. Bernanke and Obama argue back that it is not in China’s long-term interest to have a continuing weak US consumer market for its goods.

But there is more at stake here than the economic health of each nation.

The US is demanding that China reduce its heavy reliance on state power to distort markets in its favor. China has become richer since the 1980s because America’s markets are open. But now its currency policy is eroding that historic US commitment to free-trade principles.

The American model of openness and freedom is up against the Chinese model of authoritarian control and secrecy. This clash of currencies is really a clash of civilizations.

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