China’s currency devaluation and the need for global currency reform

China’s currency devaluation and the need for global currency reform

The Chinese devaluation should come as no surprise.


WASHINGTON, Aug. 23, 2015 – China has long condemned the position of the U.S. dollar as the global reserve currency and has called for a basket of currencies — including the Chinese yuan — to replace the dollar. Beijing and other critics say the use of the dollar is unfair and unjust. The sentiment against the dollar gained momentum after Washington bailed out the banks and instituted quantitative easing.

The outcry, however, is mere political posturing. In reality, governments around the world are very similar. There is only a thin line between repression, democracy and liberty.

The Chinese government constantly interferes with China’s monetary policy, and has — like the West– printed money when it fits the needs of government. Last week, Beijing devalued its currency by a surprising 2 percent.

Many condemned the devaluation as shocking, blatant currency manipulation by Beijing. They fail to recognize that central banks around the world set interest rates and other money related issues not by market demand, but by decree. Every country in the world manipulates its currency on a daily basis. When money is printed, interest rates lowered or raised, statements made about money, the government is manipulating the money.

But why the latest devaluation from Beijing?

The reason is simple: Manipulating the money supply is a political tool. Printing money is a tempting quick-fix to cover up the economic realities of a country. Eventually, however, this slight-of-hand will fail.

The actions by Beijing are predictable, for a government that interferes in all aspects of Chinese life. The economic power of the country makes it tempting to forget that China is a communist system, complete with multi-year plans and strict government control. The ruling party is not concerned with justice or with an honest market. If China had a just, free monetary system, honest money would have intervened and allowed the market to determine the value of the currency.

But honest money comes from an honest, free and just government. In a just system, the government is responsive to the people, and the people hold the real power. People would decide how to spend resources, and free markets would act rationally in setting prices and priorities. The market comprises all the people and does not involve a handful of individuals making financial decisions.

The Chinese manipulations is a reminder that as long as currency is tied to government, there is no true freedom, no justice in monetary policy. The current Chinese government does not trust people or markets, so it intervenes. Is that so different than Washington, which manipulates U.S. money supply?

This search for financial justice has created bitcoin. This extraordinary digital currency offers a real alternative to government-controlled currency. It is still in its infancy, with questions about security, control and supply, but the idea of a truly market determined currency is intriguing.

Bitgold, digital gold currency, is also emerging as a viable method of settling payments. Gold and other commodities have played a monetary role for millennia, and bitgold may signal the resurrection of this age-old currency. Gold has many advocates, who criticize manipulation by central banks. Peter Schiff, for example, promises that his Euro Pacific Capital will “launch the first ever true gold debit card, which will allow account holders to spend directly from their gold holdings, without first having to sell their gold and load their debit cards with cash. That way deposits stay in gold unit the moment they are spent by swiping the card.”

Until the world establishes free, just, honest currency, moves like the Chinese devaluation or quantitative easing should come as no surprise. Governments will manipulate currency for their own benefit as long as they can.

Once a truly free currency emerges, we can finally be on the road toward a just economic system.

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