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To say that the Chinese government’s policy on its currency is the cause of imbalance in global trade is untrue. And, of far more worry is the US and European fiscal crisis, said a respected Chinese economist here on Wednesday.
China should not be pushed by other nations to revalue its currency, said Yu Yongding, senior economist and former member of the monetary policy committee of the People's Bank of China, that country’s central bank.
“It is not in the interest of any country to push China to revalue. The imbalances in the Chinese economy cannot be eliminated only by monetary policy measures,” he said at a conference organised by the Export-Import Bank of India.
The exchange rate of the Chinese currency, the yuan, has long been a subject of debate. Critics say it is undervalued to give China an unfair advantage in exports and help the country maintain a huge current account surplus. China has run a current account surplus persistently for 20 years, barring 1993. It was $306 billion in 2010, a 25 per cent rise over the previous year. The yuan’s exchange rate is 6.44 for every dollar.
Yongding, however, dismissed these claims. “To push China to eliminate its current account surplus is not necessarily in the interest of America. The US has benefited greatly from China's current policy. I am sure the US government knows this well...Whatever the Americans say or not say, China must speed up its rebalancing (of the economy), so as to guarantee the sustainability of its economic growth,” he said.
According to Yongding, the most serious threat to the stability of the global economy is occurrence of a fiscal crisis, rather than a balance of payments crisis led by global imbalances.
A panic sale of US government bonds will be more severe than the subprime crisis and the US government needs to take steps to prop up the demand for these securities, he said.
China is currently the biggest holder of US government securities.
“Europe’s periphery is under sovereign crisis. The US’ fiscal position is on the edge. If it were not because of the US dollar’s position as an international reserve currency, a fiscal currency crisis would have happened already,” Yongding said.