Download “Currency Manipulator "and the Financial Game of Sino-US

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“Currency Manipulator "and the Financial Game of Sino-US
HUO Ying
School of Economy, Shandong Institute of Business and Technology, 264005
[email protected]
Abstract: The US Semi-Annual Report to Congress on International Economic and Exchange rate
policies regarded China as "Currency Manipulator", this report put pressure on Yuan Appreciation with
the excuse of currency manipulation to effect China’s exchange policy. Although the issue of “currency
manipulation” isn’t intensified due to China’s effort on the coordination with US, with the integrative
communication of world finance becoming more frequent, the financial conflicts will be inevitable
between China and US or other countries in future. The author Makes use of a game theory to analyze
prediction behaviors and practice behaviors of both parties respectively in the game of Sino-US
currency manipulation, and the optimization strategy is studied in this paper. The author abstracts the
basic elements from the complicated financial phenomenon, and gives an analysis on
element-constitution model. Based on the analysis, the strategy of dealing with financial conflicts is
discussed further in this paper.
Keywords: Financial conflict, Financial games, Currency Manipulator
1 Instruction
American Ministry of Finance lately announced to aim at Report to Congress on International
Economic and Exchange rate policies that it mainly trades object on May 27, 2011. The report thinks
the United States' main trading partner including China has never manipulated currency exchange rate to
obtain unfair trade advantage. Point out China the heavy Yuan exchange rate has formed mechanism
reform since June, last year, Yuan inside a year continuously revalued to the dollar rate in the past, and
China not agreed with to match the definition that the exchange rate manipulated a country. China starts
strengthening Yuan exchange rate flexibility to keep up to now for 4 the end of the months, years from
June, 2010, Yuan to dollar rate already the total amount revalue 5.1%. Press the nominal exchange
calculation, this appreciation range equivalence the adulthood rate is about 6%. Considering an inflation
factor is more significantly high than the United States because of Chinese inflation rate, Yuan has to be
larger to the actual appreciation range of U.S. dollar, and the year appreciation the range as about 9%.
But China mean to continue to strengthen Yuan exchange rate flexibility, and still pass recently 20
country groups with Sino-US the strategy and economy have a conversation and did in the aspects of
solving exterior being out of balance policy commitment.
2 " Currency Manipulator " and Two Country Financial Game Analysis
2.1 "Currency Manipulator" affairs analyzes
2.1.1 The problem can’t completely solves
American Ministry of Finance wants to hand in toward the congress once International economy and
exchange rate policy report every half year and involves ten main trading partners of the United States,
including economy in China, Japan and Korea, euro area and England, Brazil and Canada etc., these
economies have the three quarter of American foreign trade total amount around. The contents mainly
includes an international economy and exchange rate policy circumstance. Though the United States
emphasizes that Yuan Appreciation problem didn't politicize, for currently and Sino-US both parties
come to say, Be no longer pure economic problem.
2.1.2 Continuously revalue trend bottom, Yuan is thought "serious underestimation
For creating the ordered economic and financial condition promotes foreign exchange system of stability,
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Chinese government has already made concession and effort is biggest. Remit to change on July 21,
2005, Yuan exchanges U.S. dollar already from 8.26 rise to 6.47. But China start strengthening Yuan
exchange flexibility from June, 2010 and keep up to April now, years to dollar rate already the total
amount revalue 5.1%. Consider an inflation factor, It is about 9% in the range of Yuan Exchange
Appreciation every year.However when this situation is next, the American Ministry of Finance still
keeps clamoring although China didn't manipulate an exchange rate, Yuan exchange rate still drive"
serious underestimation".
Figure: Dollar rate five year trend diagram
http://www.ytwhw.com/hq/cny/
2.1.3 Passive situation of Chinese government in financial conflict
In many trades and financial conflict with the United States, China relates to in both parties' game in
accustom to carry on to passively reply. But from long term of development, Chinese government
should continuously absorb experience and turn gradually passive is active, in aggressive way to face
with various conflict. Because the Sino-US financial game is relating to, China isn't completely passive
square, but it is to pass various meanses to for example reduce to hold American national debt etc., and
the international negotiation fights for economy and the benefits on the finance for oneself mutually.
2.2 The financial game analytical and superior reasonableness policy
2.2.1 Financial game the assumption constitute main factor
Make use of a Game Theory to study the Sino-US Be make policy corpus, of two countries for"whether
the United States will lend to force Yuan Appreciation with Currency Manipulator" this sets question to
carry on game analysis. Discuss two countries to make policy how the person make the native effect to
maximize a problem while giving to settle information structure. Namely discuss under the financial
conflict Sino-US in supporting native benefits foundation, two country governments" Currency
Manipulator " will can't be affirmed, and will can't cause the dynamic state game of further trade
conflict or financial conflict.
In the assumption, this game is constituted three essential elements:
1. Players. Namely participating in person or person involved is Sino-US two country governments,
suppose two national capitals here are rational economic persons, all respectively pursue a maximizing
of benefits respectively
2. Strategies. The basis of "the United States will use Currency Manipulator lend to force Yuan
Appreciation"; And"the United States can't use Currency Manipulator lend to force Yuan Appreciation"
carry on analysis;
3. Payoff. And It is called utility or pay function, is defined the United States put pressure on Yuan
Appreciation, is adopted of the reaction of various measure in China. Combine to analyze respectively
beneficial factor in the nation of both parties and disadvantageous factor.
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Two country's governments were used as to participate in person and strategy to gather to constitute a
basic game with effect
The game is a complete information dynamic state game, in the game, the United States has active
power, each participant all takes the other party as a premise while taking strategy action, is own
decision behavior what to consider the possible output influence is to the other party, and the behavior of
the other party to oneself possible influence, pass to choose the best activity strategy, look for
maximizing of income or effect. Because the benefits conflict of the reality and unanimously have
catholicity, therefore, it is in aid of to pass Sino-US the game analysis of two countries us to study if
current United States will affirm(or will affirm that China has in the future"the exchange rate
manipulate") to adopt measure to force Yuan Appreciation" thus. In the iterative game, whether
discussion both parties will carry on a cooperation, attain two country economic benefitses to maximize
a result.
2.2.2 U.S. lends to force Yuan Appreciation with "Currency Manipulator" of dynamic state game process
According to under the financial conflict angle of view of concerning "Currency Manipulator" affirm of
game analytical diagram
Game model in the United States
○ U.S.
①
↙↙
(0, 0) Don't affirm that China is "Currency Manipulator" ●affirm that China is "Currency Manipulator
"( such as adopt anti- subsidy measure to China)
↓
● China
Don't reply
Reply
(x-y, -z)
↓
● U.S.
↓
Don't influence ↓there is influence of, but don't carry on revenge have influence, the United States
carries on revenge and adopt further measure
(x-y, -z0)
( x′ -y′ , -z′ )
( x″ -y″ , -z″ )
Note: Establish the x gets for the benefits of U.S., such as will match with the United States adjusts to
match with the states with the structure that the exit arouses an economic growth with the structure
adjustment that the exit arouses an economic growth, support native employment and industry's
developing etc.
Establish the y as the loss of U.S., if American people want to purchase a same product by higher price
and consume level to lower and cause domestic antinomy
Establish the z as the loss of China, such as loss employment and trade income
x′, y′while to affirm Currency Manipulator in China, the United States adopts anti- subsidy measure and
collects lower revenge under the tariff circumstance the benefits and loss of U.S.
-z0 is to affirm Currency Manipulator in China, China carries on replying, but doesn't influence a
condition to American economy under, China’s loss s only because of Anti- subsidy measure of U.S.
-z′is to affirm Currency Manipulator in China, the loss produces of China unresponsive .
x″, y″is China to carry on revenge reaction under the circumstance respectively, to American economy
under the greater influence circumstance the benefits and loss of the United States
-z″ is China to carry on revenge reaction under the circumstance, the comprehensive economic loss in
China caused
The game is analytical:
While -z0 - z
-z′ -z″, to be affirmed Currency Manipulator, China's only replying is to the most
beneficial choice for oneself. So, if once affirming that China is "Currency Manipulator" and adopt to
interfere with measure, the United States only has iner "China doesn't reply, need not carry on revenge",
"China reply, but doesn't influence to American economy, need not carry on revenge thus" and"China
↙
↙
②
↙
↙
﹥ ﹥ ﹥
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replies and has the influence on American economy and carries on revenge thus" of threes carries on
choice and get a benefits biggest, then compare x-y, x ′-y ′, x ″-y . Of three parameters which
parameter biggest, the United States will choose a homologous activity.
Equally, once being affirmed is "Currency Manipulator" to combine be adopted to interfere with
measure, the target of China is - z0 - z -z′ -z″. Namely adopting should is the biggest to the
self-interest like this to the measure. Because of this conclusion, the United States carries on the result
that"Currency Manipulator" gets to China, its economic effect unlike United States doesn't carry on
"Currency Manipulator" to China effect is larger. Fragment can get: The United States finally can't carry
on the accusation of "Currency Manipulator" to China.
Conclusion
U.S. forces Yuan Appreciation to have three advantages namely, 1, can match with U.S. passes to force
Yuan Appreciation to weaken with the structure adjustment that the exit arouses an economic growth
medium domestic product competition ability; 2, China sits to hug huge beautiful debt, Yuan
Appreciation dilution obligation; 3, pass to interfere Yuan exchange rate influence China to grow. So the
United States if affirm that China may put forward the bill that a series aim at China after being
"Currency Manipulator " and trade power to exercise bill such as exchange rate revenge bill, Chinese
currency bill and the United States. But in consideration of the reaction of Chinese government, this
accuses behavior can’t carrying out finally.
Ministry of Finance in the United States means in its foreign exchange report, include China at inside of
American the main trading partner didn't manipulate a currency exchange rate. "China didn't manipulate
for acquiring unfair trade advantage an exchange rate policy". The report of American Ministry of
Finance admits that a series of policy of China has "important function" in the aspects of stabilizing a
world economy and reducing oneself foreign trade surplus.
﹥ ﹥ ﹥
③
2.3 Result analyzes of Sino-US financial game
From the game analysis, under the economic person who maximize in the benefits supposes, American
government finally can't carry on the accusation of "Currency Manipulator" to China. But face quickly
growing of all countries, the United States lends unfavorable balance of trade and economic unbalance
in the world to fight its latent rival for and pay attention to more to support own financial currency
hegemony position. China of the vast territory, huge population and more perfect national economy
system has the quality that big country in the world and currency internationalize, is its one of the
mainly latent challengers. Recent years China unifies at economic development, national defense and
nation etc. of fruitful, enhanced the consciousness in the United States. So, China is chosen for the
object for suppressing, some League of nations that set up to force Yuan Appreciation, manipulate IMF
to pass the proposal aiming at China. So the pressure of Yuan Appreciation, not because of current the
United States declare that China isn't “Currency Manipulator " already alleviated, this counter will also
continue to play the tool that it forces appreciation. From here whether willing cause is lately a financial
conflict, the answer is affirmative. Then the talent of government wants to moderate financial conflict
degree to get stripe as far as possible and avoids more serious conflict occurrence.
3 Conclusion
The above analysis this can get as follows a few conclusions:
The first, The government must control the speed of Yuan Exchange Appreciation in the near future, and
handle like financial foam aroused by exchange appreciation, avoid the risk of financial system from
deliver chain to influence real economy to cause an economic crisis thus.
The second, while carrying on a financial game, The government should set up and adjust economic
structure and inside step that need to be extended, push economic growth and development method
change, by the root work out the problem of international receipt and expenditure unbalance, earn the
competitive advantage of participating in the financial international game.
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The third, it should to the farsighted mechanism of financial conflict in china. The government should
be perfect our country finance early warning of take charge of system to guard against and dissolve
system financial risk to control completely the risk information in time. Support native rating
organization, depend on own strength maintenance nation finance safety.
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