Is China keeping its currency undervalued a double edged sword for China?
One complicating factor here is that the US$ is defacto the world currency. Irrespective of any issues of trade imbalances, it’s necessary for the central bank of a nation to increase the money supply as the economy of that nation grows. If they don’t, you can get a problem with liquidity which chokes the economy. Back in the middle ages, when precious metal was “money”, they had that problem and their economies couldn’t expand fast enough until after a huge silver strike at Joachimsthal in Bohemia. Then, later, the massive influx of precious metals from Central America resulted in the opposite problem: too much money resulting in inflation. Because the US$ is effectively the world currency, if the US “solved” its trade imbalance problem and balanced its trade, it would mean that the world’s dollar supply would stop growing, and the world economy could conceivably stall as a result of liquidity problems. Oddly enough, that means that international trade actually requires the US to keep
