This piece originally appeared in the Financial Times.
How ironic that the world’s reserve currency issuer (the US) and its long-term rival to that status (China) are competing to nearly debauch their own currencies? America’s behaviour – more effect than intent – takes the form of quantitative easing. China’s takes the form of not letting its currency strengthen (which makes the recent monetary tightening deflationary for others).
But unilateral American action against China cannot be the basis for resolving the currency wars. Effective and legitimate multilateral action to induce Chinese co-operation is necessary. Mobilising a broader coalition of the “affected but as yet unwilling” countries before the upcoming Group of 20 summit in Seoul should be America’s priority.