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China’s Gift to Europe

Europeans are wrong to be angry with China because its currency peg to the US dollar has boosted the euro against most currencies on foreign exchange markets. On the contrary, they should view the currency peg as a valuable gift.

In New York and other American cities, European shoppers are on a spree. They’re enjoying first hand the euro’s enhanced purchasing power abroad.

The currency peg has also helped make the euro into an important reserve currency, rivaling the dollar. Investments from all over the world are flowing into Europe as a result.

It was predictable that China’s currency peg would have this effect. It forced China to accumulate huge amounts of dollars to stabilize its currency and gave the euro an extra boost as the dollar depreciated.