The world's two largest economies vowed to prevent exchange rate policies from going out of control at the fifth China-US Strategic and Economic Dialogue last week. Since China has a consistent record of contributing to global rebalancing through exchange rate liberalization, the United States should pay more than just lip service to the issue.

The two countries have promised to abide by the commitments made under the G20 framework and refrain from following exchange rate policies that could damage global financial stability. The US' quantitative easing (QE) policy went against this commitment by keeping interest rates at zero in the aftermath of the global financial crisis, which drove down the dollar and created a volatile atmosphere across international financial markets. Rapidly rising inflation in emerging market economies is just one of the negative outcomes of the QE policy.

The US is known for engineering its monetary and exchange rate policies to suit its economic needs. In the 1990s, for example, its weak dollar policy drove international capital into East Asia and pushed up local asset prices. Later, as the dollar strengthened, international capital flew out of the region, triggering the 1997-98 Asian financial crisis.