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Home Publications Blogs Beat the Press If China is Worried About Losing Jobs Why Is Its Central Bank Raising Reserve Requirements?

If China is Worried About Losing Jobs Why Is Its Central Bank Raising Reserve Requirements?

Saturday, 20 November 2010 08:57

The NYT reports that China's central bank is raising the reserve requirements for banks. It claims that this is being done to give the central bank more money with which to buy dollars in international currency markets, which will keep the yuan from rising.

The article claims that China does not want the yuan to rise because a higher yuan would make its exports less competitive and therefore cost jobs. However, raising reserve requirements will reduce lending, thereby also throwing people out of jobs.

The article also says that China is worried about inflation. If this is true, then the most obvious way to reduce inflationary pressure would be to just let the yuan rise. This would make imports cheaper and also slow growth by reducing exports.

The actions of China's central bank is inconsistent with the motives attributed to it in this article. Either those governing China's central bank are confused about basic economics or the article has inaccurately presented the motives for its actions.

Comments (3)Add Comment
Blame GE, GM and Apple. Not China
written by Mark G, November 20, 2010 9:34
Approx. 40% of Chinese exports to the US are from US based MNC's operating factories in China. GE, GM, Apple, Ford, etc. Back out that figure and you have trade balance between the US and China.

US based MNC's that are led by billionaires, multi-millionaires make a fortune playing the race to the bottom in the global wage arbitrage game. The US needs to look in the mirror and quit pointing fingers at China. Bring the jobs home, enact tariffs or STFU. It's really that simple.
Commies can't quite figure out Capitalism
written by Paul, November 20, 2010 9:55
Apparently, the Chinese Commies studied Keynes' The General Theory pretty well, but they still haven't figured out how all the capitalist mechanisms work together. They seriously need some good advice which they are not getting.
written by skeptonomist, November 20, 2010 11:41
Numbers like the one Mark G. gives are things that US consumers/voters can understand, and that liberal economists need to publicize. The general population may never understand the implications of exchange rates and why "keeping the dollar strong" is not necessarily a good idea. But if they are shown who in this country is profiting from Chinese and other imports there may be more pressure to take action, which could be in the form of tariffs instead of monetary policy. The media should not be allowed to get away with portraying current policies as "free trade" which is always beneficial but to do this it is probably necessary to identify the actual "people" (including corporations) who pressure the media and Congress.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.