IMF Sees No Need for Yuan Appreciation
Michael Rogoff, the International Monetary Fund's chief
economist, said that there is no need for the Chinese
yuan, or RMB to appreciate. The yuan is pegged to the
US dollar at a rate of RMB8.28 to one US dollar.
Recently, US treasury secretary Snow and Federal Reserve
chairman Alan Greenspan have suggested that China make
its exchange rate more flexible, and let it appreciate
against the dollar. Many US senators and trade officials
blame China's yuan for fueling cheap exports to the US,
and driving the US's trade deficit with China. In addition,
they fear that the cheap yuan is driving many US companies
to relocate their research and manufacturing facilities
to China, where labor and costs are much lower than in
the US.
Last week four senators wrote to Snow, asking him to
investigate whether China's exchange rate is responsible
for 34 months of US manufacturing job losses.
At a meeting of 25 European and Asian trade ministers
in Dalian in northeast China, European trade ministers
are also expected to ask the Chinese to let the yuan appreciate
against the euro.
Although China has said that it is willing to consider
letting the yuan trade in a wider band with the US dollar,
it is highly unlikely that they will let the yuan float.
Chinese social domestic considerations are a key player,
as the cheap yuan allows the Chinese economy to create
many jobs. High unemployment from an appreciated yuan
would contribute to unemployment and social unrest. China
is also mindful that the rapid appreciation of the Japanese
yen against the US dollar in the 1980s following the Plaza
accords contributed to the Japanese property and stock
bubble, from which Japan's economy has not yet recovered.
US pressure at that time was based on the US's trade deficit
with Japan.
Chinese leaders are counting on China's growing urban
middle class to drive demand for products so that the
US deficit with China will not become unmanageable.
The US is unlikely to apply heavy political pressure
on China re the yuan exchange rate now because it needs
Chinese support to defuse the North Korean situation.
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