Donald Trump was apparently angry about the value of the Russian ruble and the Chinese yuan against the dollar. He complained in a tweet that both are playing the "Currency Devaluation game" in a tweet yesterday.

Neil Irwin rightly points out that the complaint against Russia is bizarre, both because we don't have much trade with Russia, but also because the most obvious reason its currency is falling is sanctions pushed by the United States and other western countries. The story with China is a bit more complicated.

China's currency has actually been rising against the dollar over the last year, with the yuan going from 14.5 cents to 15.9 cents. So the claim that China is devaluing its currency is pretty obviously wrong.

There is, however, an issue of whether China is still deliberately depressing its currency against the dollar. As Irwin notes, China is no longer buying large amounts of dollars and other reserves, as it did in the last decade. This buying raised the value of the dollar and kept down the value of the yuan.

However, China still holds a massive stock of foreign reserves, with its central bank holding more than $3 trillion in reserves and its sovereign wealth fund holding another $1.5 trillion in foreign assets. These huge stocks of assets have the effect of holding down the value of the yuan in the same way that the Fed's holdings of assets keep down interest rates.

The vast majority of economists accept that the Fed's holdings of more than $4 trillion in assets have lowered long-term rates. It is inconsistent to argue that the Fed's holdings of assets keep interest rates down, but China's holdings of excessive amounts of foreign exchange don't have a comparable effect on the value of the yuan.

In short, Trump is clearly wrong in claiming that China is currently devaluing its currency. However, he does have a case that China is still keeping down the value of its currency. Interestingly, he never made this complaint in the context of his threatened tariffs. This is the sort of well-specified policy goal that might warrant the threat of tariffs.

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