The US–China Trade Dispute
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The US–China Trade Dispute

Facts, Figures and Myths

Imad Moosa

While the Americans accuse China of damaging their economy, the Chinese claim their policies are legitimate and that the US has no right to dictate how the Chinese economy should be run. Imad Moosa addresses contentious issues including: whether the Chinese currency is undervalued, whether the undervaluation of the yuan, should it exist, is the cause of the US trade deficit with China (hence revaluation being a justifiable cure) and whether Chinese economic policies are immoral and illegal according to IMF and WTO rules.
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Chapter 2: The International Monetary System

Imad Moosa


INTRODUCTION This chapter is devoted to a study of the structure and history of the international monetary system and exchange rate arrangements for the purpose of putting things into perspective when we discuss Chinese policies in Chapter 8. As we saw in Chapter 1, some economists argue that China is hurting the world economy by adopting an exchange rate arrangement that represents a violation of the IMF rules (Mussa, 2007; Bergsten, 2010a). To answer the question of whether or not China has the right to choose the exchange rate arrangement it deems suitable for its economy, we need to understand the developments that have led to the rules and regulations governing the present international monetary system. The international monetary system (IMS) is a framework of rules, regulations and conventions that govern financial relations among countries. It is so important and crucial for the world economy and international economic relations that Adam Smith described it as the “Great Wheel” because “when it does not turn well it adversely affects the welfare of nations” (Smith, 1776). Rules and conventions govern the supply of international liquidity and the adjustment of external imbalances as well as exchange rate and capital flow regimes. CLASSIFICATION OF INTERNATIONAL MONETARY SYSTEMS International monetary systems can be classified according to two criteria: the nature of the reserves held by central banks and the degree of flexibility of exchange rates. Reserves may be commodities (metals, such as gold and silver, to be precise) or currencies, which presently cannot be converted...

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