After 20 years, the Chinese government must be used to it—being bashed by US politicians and Congress as a “currency manipulator.” Indeed, the exchange value of the yuan (or renminbi [RMB]) is fixed each morning by its central bank, the People’s Bank of China (PBoC), with a narrow band of only + 2 percent allowed, up or down, within which market forces can have their say. In effect, it is an exchange rate set and controlled by the PBoC.
But why pick on just China?
Most countries “manipulate” their exchange rates…
According to the IMF (International Monetary Fund), well over half its member countries’ governments meddle, in a mild or total fashion, to influence or fix their exchange rates. As shown in Figure 1, “Fixed Peg” and “Currency Board” are countries with currency values fixed for a considerable period of months or years. In “Managed Float” cases, market forces are allowed to play, but with the government intervening (buying or selling) to bias the exchange rate upward or downward. “Adjustable Pegs” are situations where the government fixes the rate temporarily—for months at a time or daily, as in the case of China. It is only with a few major currencies, such as the dollar or euro, that the government allows a “Free Float” with minimal or no intervention.
Figure 1: Percentages of IMF Member Nations Intervening in Foreign Exchange Rates (Source: IMF)
What exactly is behind the accusation of “currency manipulation”?
Generally, the accusation alleges that the government is keeping its currency too weak, overly devalued, or undervalued in order to give an artificial boost to exports while keeping out imports. This has the effect of boosting jobs in that country.
Take China as an example. A Chinese exporter earning a dollar turns it into the bank and gets 6.4 RMB yuan. By comparing costs in China and elsewhere, IMF and other economists calculate a hypothetical purchasing power parity (PPP) rate of 5.7 RMB/$, which would supposedly prevail under market equilibrium and without government meddling. At 6.4, some economists argue the RMB is still undervalued. But if the theoretical rate of 5.7 RMB/$ were to happen, the Chinese exporter would get only 5.7 RMB per dollar at the bank counter. The 6.4 RMB/$ rate provides a 12 percent higher revenue to the Chinese exporter, compared with the hypothetical 5.7 RMB/$ rate that some economists say should prevail. The still-undervalued 6.4 RMB/$ rate, they allege, gives the Chinese exporter an advantage.
By the same token, imports into China cost 12 percent more at the allegedly undervalued 6.4 RMB/$ rate than at the PPP 5.7 RMB/$. This, they allege, makes imports into China 12 percent more expensive than they should be, thereby keeping some foreign products out of China and benefiting (or protecting) Chinese firms that produce substitute products that compete with imports. On both the import and export side, an undervalued exchange rate boosts or preserves jobs in China (at the expense of jobs in the rest of the world).
But the Chinese have already massively appreciated their currency since 2005…
It must be particularly galling to the Chinese to hear accusations of currency manipulation since, succumbing to pressure from Western countries, they have already massively appreciated their currency in the 10 years since 2005. In June 2005, following more than a decade of a fixed exchange rate at 8.27 RMB/$ (when it was indeed undervalued), the Chinese gradually appreciated their currency all the way to 6.2 RMB/$ by July 2015. In the minds of many Chinese economists, their currency is no longer undervalued at around 6.2 for three reasons:
1. Between June 2005 and July 2015, the RMB appreciated/strengthened by 36 percent (see Figure 2)
This means that Chinese exporters in 2015 earned as much as 33 percent less that they would have at the 2005 exchange rate. Several Chinese exporters found themselves uncompetitive with the stronger currency and had to shut down their operations in China and relocate production to Vietnam, Bangladesh, or Africa.
Figure 2: China’s RMB Exchange Rate History (Source: Oanda.com)
By the same token, imports into China costing 33 percent less in 2015 than in 2005 means that some Chinese domestic production was displaced by imports.
In both cases, the appreciation of the yuan (RMB) has meant reduction of jobs in China, although this is consistent with the peaking of the Chinese labor force (partially as a consequence of the one-child policy). Indeed, several areas in China have labor shortages.
2. The yuan (RMB) has appreciated even more against other currencies
The PBoC fixes the RMB only against the US dollar. But in the last two years, this has meant that as the dollar has risen against most other currencies (such as the euro or emerging-country currencies such as the Brazilian real), the RMB has appreciated or strengthened even more, piggybacking on the dollar (see Figure 3).
If one combines the RMB appreciation in Figure 2 (36 percent) with the dollar’s appreciation against most other currencies since 2013 (15 percent), the local currency cost of importing Chinese products may have risen by more than 50 percent since 2005 for many prospective buyers in a large swathe of nations from Europe to Brazil.
3. Chinese wages and costs have risen
On the east coast of China, where most of its manufacturing and economic activity takes place, wages have recently been rising at least 15 percent each year. Some jobs go unfilled. The one-child policy (reversed in 2015) has led to a plateauing of the labor force. Other costs, such as real estate, have also risen sharply. Chinese exporters are beginning to feel a squeeze between (i) rising costs and (ii) the falling RMB conversion value for the dollars or foreign currencies they earn.
So, why pick on China?
By massively appreciating their currency, the Chinese have succumbed to Western government pressure. While most economists aver that the yuan (RMB) is still undervalued, they agree that in 2015 it is not undervalued by much.
Indeed, if one were to search for a more egregious recent example, it would be the Japanese yen, which has been consciously devalued by the Shinzo Abe government by around a third since November 2012.
Figure 4: Yen per Dollar Exchange Rate November 2012–November 2015 (Source: Oanda.com)
One of the Abe government’s top priorities on taking office was to drive the yen downward (devalue it) from a historically high overvaluation of 80 yen/$ (at which rate few Japanese exporters could make any money) to a more devalued rate of 124 yen/$ (by 2015 when Japanese exporters could make profits). The math is simple. At 124 yen/$, each dollar earned by the Japanese exporter converted into 55 percent more yen, compared with the 80 yen/$ rate. In retrospect, it seems astonishing that so many Japanese governments prior to Abe’s allowed the yen to remain at an overvalued rate of 80–100 per dollar, which not only grossly dampened Japanese exports, but also put the economy into the doldrums for so many years. Most economists would agree that at around 115 yen/$, the yen would be appropriately valued—that 80 was too high and that perhaps the 124 yen/$ at end 2015 is a tad too low. At any rate, the Abe government’s actions have jump-started the Japanese export engine and restored a plethora of Japanese exporters to profitability.
But is this not also a case of currency manipulation by the Japanese? And, as noted above, the IMF reports that more than half of the world’s governments have a hand in influencing or adjusting their exchange rates.
So why then pick on only the Chinese, especially if, at 6.2 RMB/$ and with rising costs inside China, they are not too far from a realistic PPP rate in 2015?
“The goal is to manifest . . . Divinity . . . by work, or worship, or mental discipline, or philosophy—by one, or more, or all of these—and be free.” – Swami Vivekananda
What drives a very private man—one who has played his cards close to his chest—such as Narendra Modi? This is a critical question not only to 1.25 billion Indians, but to the world community. What underlies his thinking? Is Modi really a Muslim-basher?
Many consider Modi’s background with the Rashtriya Swayamsevak Sangh (RSS) to indicate that he believes in the primacy of Hindus and Hindu culture and the suppression of minorities. Many still look back in horror at the Godhra riots in 2002, when more than a thousand persons—a majority of whom were Muslims—died in intercommunity violence. However, a closer examination of Modi’s philosophical and cultural motivators would suggest a more inclusive worldview.
On entering Narendra Modi’s home or office, visitors are struck by bare, unadorned walls—except for pictures of Swami Vivekananda and some gurus—and Spartan living quarters. Modi’s office and desk are also reported as being sparse and uncluttered, a sign, some say, of mental discipline and executive dispatch.Two salient influences seem to have shaped the worldview and career of the Prime Minister of India: (1) the teachings of the 19th-century Swami Vivekananda and (2) being the product of a Gujarati caste with millennia of commercial experience and historic links to the Silk Road and international trade, exemplified by the travels of 7th-century Chinese Buddhist monk and scholar Hsuan Tsang.
Photo of Narendra Modi standing before a poster commemorating the 150th anniversary of Swami Vivekananda. The quote, apparently, was composed by Modi.
Born in 1863 as Narendranath Datta to a learned Bengali family, Datta changed his name at age 30 to “Vivekananda,” which means “happiness based on enlightened wisdom.” Datta had early inclinations toward spirituality, as well as toward Indian nationalism. As a young man he linked with the Brahmo Samaj, a Hindu reformist movement that decried idolatry and saw common spiritual bonds that could unify an India that was fragmented across the diverse spectrum of Hindu gods and the patchwork of Indian states ruled by the British.
Vivekananda’s preaching has two main messages: First, that the multitude of Hindu deities, each of which may be favored by a certain subcaste, are merely the varied manifestation of one ultimate God; dogmas, rituals, and idols of various shapes are all but secondary details. Second, that the achievement of success is through mental discipline, purity, and abstinence; the way to achieve these goals is to
Take up one idea. Make that one idea your life—think of it, dream of it, live on that idea. Let the brain, muscles, nerves, every part of your body, be full of that idea, and just leave every other idea alone. This is the way to success; that is the way great spiritual giants are produced.
Many observers have commented on the fact that Narendra Modi, once he approves of an idea (or an investment proposal), will pursue it with singular focus and dispatch—and will expect execution of the proposal with the same zeal and speed from his subordinates, as well as from the bureaucracy as a whole.An irony is that the leaders and members of Modi’s party, the Bharatiya Janata Party (BJP), could be uneasy with Vivekananda’s ideals. While espousing unity across the broad spectrum of Hinduism, Vivekananda would have been horrified at the militant Hinduism practiced by many BJP members and its allies, such as the Shiv Sena. Vivekananda’s vision was not just one of Hindu ideals, but also one of Indian identity. It included an India unified not just within the Hindu community, but one that also embraced other religions, including Islam. It remains to be seen how Modi—now that he has achieved the post of Prime Minister through the single-minded mental discipline espoused by Vivekananda—will be able to reconcile and restrain the sectarian and sometimes violent anti-Muslim tendencies of BJP members with the universalist ideals of his guru, who said
As the different streams having their sources in different places all mingle their water in the sea, so, O Lord, the different paths which men take, through different tendencies, various though they appear, crooked or straight, all lead to Thee!
The Silk Road and Hsuan Tsang
The second and more inborn influence on Narendra Modi’s worldview comes from the fact that he was born a Ghanchi, a mid-level trading caste of oil pressers and grain sellers in Gujarat. Humble though his family may have been (Modi assisted his father in running a roadside tea stall), the Gujarati trading castes have had a long history of international links with Rome, Persia, and China. At one time during the Mauryan Empire, a Persian/Parsi was appointed governor of Saurashtra (part of today’s Gujarat). Mentioned by Pliny the Elder, Gujarati ports such as Barygaza (modern Bharuch) and Cambay were major entrepôts on the Silk Road, as well as centers of Buddhism. Chinese silks, Indian muslin (cotton), spices, and pearls harvested locally and from the Persian Gulf would be exchanged in Gujarat, which was a logical node at the northeasterly endpoint of the monsoon winds blowing from the Horn of Africa. All over India, Gujarati traders (often labeled “Banyas”) are still envied for their commercial acumen and entrepreneurship. Gujarat state has long been a welcoming node along a long shipping corridor connecting the Mediterranean, Southeast Asia, and China.
When Modi filed his election papers on April 24, 2014, in his brief speech he invoked the Chinese traveler Hsuan Tsang (Xuan Zhang 玄奘 in Pinyin), who had visited Modi’s birthplace of Vadnagar twice during his visit to India, spanning from 627 to 643 CE. Hsuan Tsang’s visit to India was motivated by a quest for relics and original Buddhist scriptures in the country of that religion’s origin. He followed what were, by then, well-trodden international land routes through Central Asia over the Himalayas into India. Tsang, depicted below carrying a large backpack, started out from the imperial capital Chang An (modern Xian). Braving bandits, snows, and the Gobi Desert, he made his way through Bamiyan (in what today is Afghanistan) to reach India, where he spent several years going as far south as Kanjipuram in today’s Tamil Nadu. Modi’s birthplace was an important enough Buddhist monastic center for Tsang to have visited it twice during his 14-year sojourn in India.
By then, Buddhism was already in decline in India, although expanding strongly in China and East Asia. Narendra Modi’s invoking Hsuan Tsang’s name was an acknowledgment not only of India’s international trade links, but also a reference to Swami Vivekananda’s view of the central role of Buddhism in his universalist movement’s thought, as exemplified by Vivekananda’s lecture entitled “Buddhism, the Fulfillment of Hinduism” delivered in Chicago on December 26, 1893. Narendra Modi’s political base is known for its muscular version of Hinduism. While many BJP leaders have tribal and xenophobic tendencies, and actively denigrate Muslims, Modi’s own philosophical underpinnings and cultural roots may be far more inclusive. In his remarks at Udvada in Gujarat in 2011 to a group of refugees whose ancestors originated from Persia, Modi made a revealing remark that suggests a sense of introspection about his past, a healthy dose of humility and ecumenical inclusiveness:
I want the gifts of humata, hukhta, huvarashta—to think good thoughts, speak good words, do good deeds with mind, heart, and spirit—so that I may not make mistakes, not do harm to anyone.
Modi’s philosophy appears to espouse probity, discipline, forthright action, concern for all—including the poor, and an international pro-business outlook. If Modi can keep himself at arm’s length from the baser motivations of his supporters and party colleagues, and energize investment from companies both domestic and foreign, India could see a resurgence of high economic growth that can serve to fulfill the aspirations of the 30 million who reach the age of 18 and join India’s workforce each year.
 As quoted from James, W. The Varieties of Religious Experience inThe Works of William James, a project of Harvard University Press directed by a team of scholars, including Burkhardt, F., Bowers, F., & Skrupskelis, I. A similar quote is found in “Swami Nikhilananda” in Vivekananda: A Biography. Kolkata, India: Advaita Ashrama Publication Department, 1964.
Wikipedialists more than 300 deities, including sub-deities.
 McRae, J. (1991), “Oriental Verities on the American Frontier: The 1893 World’s Parliament of Religions and the Thought of Masao Abe,” Buddhist-Christian Studies, 11: 7–36.
 Vivekananda achieved international fame from his lectures at the Parliament of World Religions and ecumenical gathering in Chicago in 1893.
 By the 19th century, the number of Buddhists in its country of origin was barely 100,000 souls. In 2010, according to the Census of India, 7.9 million Indians claimed Buddhism as their religion. It is conceivable that Modi was casting about for the support of Buddhist voters, but their minuscule numbers in a population of 1.25 billion scattered all over India, undercuts that theory.
 In Avesta, the ancient language of Persia prior to the 5th century BCE, the translation of the three words is “Good Thoughts,” “Good Words,” and “Good Deeds.” This phrase, spoken by Modi, is a foundational dictum of the Zoroastrian religion.
 Arnavaz Mama, “No Greater Honor,”Parsiana, May 7, 2011.
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