Making hay of currency shine

Making hay of currency shine

Before it was dubbed the “most important bilateral relationship" of the day, US-China ties had an Indian tinge to it. Washington used New Delhi as a counterweight to Beijing; but India, too, benefited. Now that the financial crisis leaves the nature of this bilateral relation as one of the most pressing global questions, we wonder where India is. Looking at one loaded area—China’s exchange rate—it’s clear India has a lot to gain if it takes the right steps. On Saturday, US treasury secretary Timothy Geithner decided to delay a much-anticipated report on China’s currency policies. The two sides have been fighting a currency “cold" war over the past few weeks: US legislators have been screaming for Geithner’s report to label China a “currency manipulator" since the yuan is now fixed to the dollar. Beijing has made clear it won’t like that.

Chief economic adviser Kaushik Basu suggested last month that India won’t get into this fight. But with a thaw in the cold war, it’s time for India to reflect on its stake: It doesn’t want an all-out war—protectionism—nor does it want this unstable thawing point, where things could either quickly melt or freeze over again.

After all, emerging countries such as India are perhaps even more harmed than US producers by the yuan peg since it not only makes Indian exports uncompetitive against China’s, but also makes life worse for India’s central bank. Because the yuan doesn’t appreciate, India doesn’t want the rupee to rise either. Yet the direction of capital flows keeps pushing it upward.

India’s trouble with this facet of China’s mercantilism is sure to colour external affairs minister S.M. Krishna’s visit to China this week. But it’s also worthwhile for India to make sure that this is the backdrop to another visit this week— that of Geithner’s to India.

India surely needs to address these economic issues from its own viewpoint—not act as Washington’s agent against Beijing. That calls for a nuanced approach. What is clear and simple though is— considering this weekend’s bilateral thaw is just because Beijing has agreed to attend a US nuclear security summit, as news reports suggest—we need a multilateral effort that includes India to hammer out a more lasting solution.

Does India have a bone in the US-China currency fight? Tell us at