Economy

Attempts to force RMB appreciate 'bound to fail'

(Xinhua)
Updated: 2010-09-17 20:51

NEW YORK - Washington's attempts to pressure China to quickly appreciate its currency -- the Chinese yuan -- will not solve the United States' own problem of imbalances, said Stephen Roach, non-executive chairman of Morgan Stanley Asia, on Thursday.

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"In a fragile post-crisis era, there is nothing wrong with China relying on a currency anchor as a linchpin of financial stability," Roach told Xinhua after speaking at a panel at the Council on Foreign Relations.

Other nations, including the U.S., could benefit from a similar emphasis on financial stability, said Roach, who is also a member of the faculty at Yale University.

"Shifts in bilateral exchange rates, such as the dollar/yuan cross rate, matter little for an unbalanced world," Roach said. "What matters most is China's multilateral exchange rate with a broad cross-section of its trading partners."

The broad trade-weighted yuan is currently up four percent from its 2009 low, up 12.7 percent from its 2006 low, and up 16 percent from its 2005 low (all in real terms), Roach noted.

"In short, the yuan is moving in the right direction -- key in helping China deal with its fair share of global rebalancing," he said.

On Thursday, U.S. Treasury Secretary Timothy Geithner testified before Congress and set a tougher tone on China's exchange rate policy.

Even after China announced in mid-June that it would renew the reform of its exchange rate, Geithner argued, the Chinese government "has had to continue to intervene in the exchange markets on a very substantial scale to limit the upward pressure of market forces on the Chinese currency."

Geithner said the U.S. is very concerned that the pace of yuan appreciation has been too slow and the extent of appreciation too limited.

Meanwhile, more than 140 Congress members have voiced support for a bill on the yuan exchange rate, which will impose punishing tariffs on Chinese goods once passed.

"With the election season in hand, the drumbeat in Congress is getting louder and the Obama administration and the Democratic Party in general are in serious trouble," Roach said, "The rhetoric is dominated more by politics than by global macro(-economics)."

However, Roach added: "If we think for a moment that we are going to solve this problem by bashing the Chinese we are deluding ourselves."

As much as Washington politicians would want China to help the U.S.devalue its way back into economic prosperity, "that approach is bound to fail in an era of huge budget deficits and subpar private savings," he said.

Roach, who has testified repeatedly before Congress on the issue, said the main problem for the U.S. is the lack of national savings.

"So we need to import more surplus savings from abroad in order to grow. And Congress is clueless, it does not understand this," he said.