US disruption of China currency will be disastrous: Steve Hanke

Oct 21, 2010 (LBO) - A sudden appreciation of the Chinese currency, which is sought by the US, could disrupt China's economy and the world, rather than increasing the demand for American exports, a top monetary economist has warned. "Using the authority granted by the Thomas Amendment of 1933 and the Silver Purchase Act of 1934, the Roosevelt Administration bought silver.

"This, in addition to bullish rumors about U.S. silver policies, helped push the price of silver up by 128 percent (calculated as an annual average) in the 1932-35 period."

It was argued that a stronger exchange rate would increase the purchasing power of the Chinese which would increase the demand for US exports.

In the 1932-34 period, China’s gross domestic product had fallen by 26 percent and wholesale prices in the capital city, Nanjing, had fallend by 20 percent.

After failing to persuade Washington to stop pushing up Silver prices China had abandoned the Silver standard.

"This spelled the beginning of the end for Chiang Kai-shek’s Nationalist government. America’s "plan" worked like a charm – Chinese monetary chaos ensued," Hanke wrote.

"This gave the communists an opening that they exploited - one that contributed

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