In October 2010 George Soros told the BBC’s Radio 4 news programme Today that China, although the second largest economy in the world after the US, now controls the global currency system.
Since Soros made a billion dollars when he bet against the value of sterling on Britain’s ‘Black Wednesday’ in 1992, his views on world currencies are probably worth hearing.
China in 2010, he told the BBC, controls “not only their own currency but actually the entire global currency system.”
The mechanism for exercising that control of international currencies is China’s local (national) control of its own currency, the yuan. By keeping the value of the yuan low, China has been able to flood the world with cheap exports. This undercuts US and other exporters. In consequence, the Chinese have been able to develop a huge trade surplus. The result internationally is, as Soros puts it, “a lopsided currency system.”
Soros also told Britain’s Financial Times dramatically that “whether it realizes it or not, China has emerged as a leader of the world. If it fails to live up to the responsibilities of leadership, the global currency system is liable to break down and take the global economy with it.”
China’s leaders were quick to reply to Soros’s criticisms. The Chinese regime is very aware of their country’s growing power in the international economy. Their Prime Minister, Wen Jiabao, was in Athens and Brussels in October 2010, pledging China’s ‘support’ to prop up the failing euro and the stricken eurozone countries of Greece, Spain, Italy and Ireland. China’s central bank governor, Zhou Xiaochuan – then attending an International Monetary Fund meeting in Washington – replied to Soros’s comments. He said:
“We’ve already started to have exchange rates reform for quite long time [but] it is gradual. It is good for a large economy otherwise it may be dangerous.”
And restating China’s determination to raise the value of its currency slowly, he added:
“China would like to use more gradual ways to realize a balance between domestic and external demand.”
Which means China is unlikely to relinquish any of its financial control anytime very soon.