NYT Says Concerns Over Debt Ceiling May Lead China to Stop Manipulating Its Currency

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Thursday, 10 October 2013 15:57

That's not exactly what the piece said. Rather it said that China raised concerns about the debt ceiling in discussions with Secretary of State John Kerry. It implied that such concerns may affect China's willingness to buy and hold U.S. debt.

The purchase of U.S. government bonds is the mechanism through which China "manipulates" the value of its currency. By buying U.S. bonds it raises the price of the dollar relative to the Chinese yuan, thereby making its exports cheaper to people living in the United States.

As a matter of policy, both the Bush and Obama administration claimed to be committed to ending this "manipulation." While the dollar has fallen against the yuan in the last decade it is still priced at a level that results in a huge U.S. trade deficit with China. The position of both administrations has been that their pressure is leading to a gradual reduction in the value of the dollar relative to yuna, however this article suggests that concerns over default may lead to much more rapid progress.