Every man a currency manipulator: but in the game of foreign exchange intervention, China always comes up the biggest winner.

• Author: Berry, John M.

Just before the final debate between President Barack Obama and his Republican challenger, Mitt Ronmey, Bill Keller, a New York Times columnist, gave the latter some foreign policy advice: "The stridency of your protectionist rhetoric--your promise to formally label China a currency manipulator, clearing the way for a tariff war--makes many of your supporters cringe. Okay, blaming China is a time-tested applause line. But you'll sound smarter if before you start the spanking you try this: 'A prosperous China is good for America. It is a market for our exports, a source of capital, a moderating force.'"

Is it a moderating force these days? Perhaps, but it is still taking advantage of the rest of the world by keeping its currency undervalued--albeit not nearly as much as in the past--while it's still allowing theft of intellectual property and subsidizing exports. True moderation wouldn't involve any of those things.

What is clear is that China achieved its "miraculous" growth as a result of blatant currency manipulation that effectively stole growth from many of its trading partners. Between 1978 and 1993, China's government pushed down the value of the renminbi by nearly two-thirds, in what Surjit S. Bhalla, an Indian economist and hedge fund manager, calls "the fastest and largest real devaluation anywhere, anytime." In his new book, Devaluing to Prosperity; Bhalla says the value of the currency then nearly halved again between 1994 and last year.

It wasn't just the amount of the devaluation that mattered. "If a small or even a medium-sized country achieves miraculous growth by undervaluing its currency, it will upset some neighboring countries, particularly its competitors, but it will have only a marginal impact on the global economy. It is another matter altogether when the country that achieves miraculous growth through large currency devaluations accounts for more than one-fifth of the world's population," writes Bhalla, who has also worked at the World Bank and several financial institutions.

"It may be true that China's growth helped neighboring countries supply extra inputs, much like England's colonies benefited from supplying cheap imports to England in the nineteenth century. But the counterfactual may be more important: what would the growth rates of these countries have been if China (or colonial England) were not practicing extreme undervaluation?" Bhalla asks. His answer: the other countries' currencies would have been cheaper and they probably would have had higher growth rates. China's behavior and its neighbors' currency overvaluations, he further suggests, were "most likely" a key cause of the Asian financial crisis of 1997-98.

Bhalla's analysis found that for the 1995 to 2011 period, each 1 percentage point increase in the annual rate of change in depreciation of the renminbi led to about a 0.2 percentage point decline in an average country's economic growth rate. "This is the strongest proof that currency undervaluation, especially for a large country, is a beggar-thy-neighbor policy," he says.

Some economists, including Paul Krugman of Princeton University, who is also a New York Times columnist, question whether an undervalued renminbi is still a problem. Under the headline, "An Issue Whose Time Has Passed," Krugman wrote last month, "In 2010 an undervalued renminbi was a significant drag on advanced economies, including the United States. Since then, however, two big things have happened: relatively high inflation in China, and some appreciation of the renminbi against the dollar." As a result, the real exchange rate of China against the United States...