That is the question that the NYT should have been asking in an article that reports that China's WTO representative complained that the United States "had failed to safeguard the value of its currency, worsening the pain for people around the world who pay high oil and food prices in dollars." Did the Chinese really not understand that when they were buying several hundred billions of dollars a year worth of U.S. financial assets that they were propping up the dollar? This would imply unimaginable ignorance about financial markets. It would be comparable to the Saudis not realizing that their oil output affects world oil prices or Microsoft not realizing that it can affect the price of computer operating systems. The fall in the dollar is not raising the cost of any products for any country that does not choose to link its currency to the dollar. Items cost more money measured in dollars, but other currencies would rise against the dollars (other things equal) unless they have opted to link their currency to the dollar. The article should have pointed out to readers that the pain noted by China's WTO representative only would result to countries that chose to link their currency to the dollar, it is not a result of the falling dollar per se.
--Dean Baker
