China is starting to describe its currency interventions as stimulus. But unlike extra government spending in the United States and other countries, currency intervention does not expand global demand, but shifts it from other countries to China.
Two closely related scourges played a central role in the collapse of world trade in the 1930s: protectionism and beggar-thy-neighbor currency devaluations. World leaders set up two institutions after World War II, now known as the W.T.O. and the I.M.F., to reduce the risk of another Great Depression.
Unlike its predecessor, which had weak arbitration panels whose rulings could be easily blocked by the losing country, the trade organization has had powerful tribunals since 1995. These tribunals can clear the way for the imposition of sanctions running into the billions of dollars.
Filing a case against another country is the heaviest artillery available to countries in trade disputes. But it also is expensive. Preparing a case and pushing it through a tribunal can easily require millions of dollars in legal expenses, and low-income countries seldom file them.
China joined the W.T.O. in 2001 and in its first seven years filed only three cases. But it has stepped up its pace recently, and has filed four of the 15 cases in the last year: two against the United States, on poultry and tires, and two against the European Union, on steel fasteners and poultry.
The monetary fund has not acquired similar powers to the trade organization.
I.M.F. policies call for it to disclose documents and information on a timely basis, with the deletion only of market-moving information. But under the rules a member country may decide to withhold a report, an organization official said.
China allowed the release of its reports until the monetary fund’s executive board decided in June 2007 that reports should pay more attention to currency policies. China has quietly blocked release of reports on its policies ever since, without providing its specific reasons to the I.M.F.
A person who has seen copies of the most recent report last summer said that the monetary fund staff concluded the renminbi was “substantially undervalued.”
The monetary fund regards a currency as substantially undervalued if it is more than 20 percent below its fair market value.
More than four-fifths of the I.M.F.’s members allow publication of the agency’s annual staff reports on their economies. Countries blocking release are mostly tightly controlled places like Myanmar, Sudan, Turkmenistan and Saudi Arabia, although Brazil has also not released its reports.
China’s central bank did not respond to calls and messages seeking comment.
The main indicator of a country’s intervention in currency markets is its level of foreign reserves. China halted the gradual appreciation of the renminbi against the dollar in July 2008; from June 30, 2008, through Dec. 31 of last year, China’s foreign exchange reserves rose by $590 billion. A small part of the increase reflected interest on bonds, the appreciation of stocks and currency fluctuations.