China is a great example of this. For ten years, the Chinese yuan has been pegged to the dollar, prompting billions of dollars worth of foreign investment to flow into China's emerging market-oriented economy. Even during the Asian fiasco in the late '90s, the Chinese steadfastly anchored their money to the U.S. dollar. At the time, this was regarded as a big plus for world financial stability.
Integrating China's modernized economy is not only important for world growth, it gives the Chinese a comfortable seat at the high table of international diplomacy. Badgering China's money and undermining its 10 percent growth rate will not help the United States deal with nuclear-threatening terrorist outlaws in North Korea.
Since it costs about $1,200 per person to create a new manufacturing job in China, compared to $26,000 in the United States, a modest appreciation of the yuan is not going to solve anything. But it could destroy a nascent prosperity, both there and here. Same in the case of Japan. The yen has been slowly appreciating as a result of Japan's improving economy. Pushing it toward a faster currency adjustment, however, could cause worldwide financial instability.
In order to stabilize their currency rates, Japan and China have purchased $96 billion in dollars on currency markets in the first half of 2003, and reinvested them in U.S. Treasury debt. Effectively, these nations are financing the Iraq war. Why would the U.S Treasury prevent this? Meanwhile, a major loss of dollar value could lead to an unholy interest-rate spike that would completely unhorse the current stock market rally and business recovery.
If worldwide dollar demands keep falling, then the new overhang of unwanted dollar liquidity circulating at home and abroad could trigger a new bout of inflation. Gold prices are marching toward $400, a level that some economists believe is a signal of excess liquidity and higher future inflation.
When it comes to international currencies, the best thing that can be done to promote world recovery and President Bush's re-election is absolutely nothing. Tax cuts and steady money will do the trick if left to their own devices.
Why anyone would wish to throw a monkey wrench into global recovery is hard to understand. If it ain't broke, don't fix it.