CHAPTER 9
CHINA
ROBERT JOHNSON
“When large economies with undervalued exchange rates act to keep the currency from appreciating, that encourages other countries to do the same. This sets off a dangerous dynamic.”
—Tim Geithner, October 2010
Currency imbalances in the global economy played an integral part in creating the 2008 financial crisis. The old Bretton Woods system devised after World War II, which broke down in 1971, has not been replaced by a monetary system that is capable of dealing with the problems of today’s volatile currency markets and trade imbalances. Given this, China’s unilateral currency peg will not work going forward. China is simply too large a country to continue on the mercantilist path of export-led growth. Threats ...
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