Author: Shiro Armstrong, ANU
It is now less than a month until the G20 Summit in Seoul. The agenda is firming up but unlike in the Toronto Summit, which was less ambitious and the coverage of which focused on protests in Toronto, Seoul is set to be a real test of what the G20 can deliver.
US Treasury Secretary, Tim Geithner, has delayed publishing a US Treasury report on Chinese currency manipulation until after the Summit. This intensifies the focus on the exchange rate issue at the G20. Read more…
Author: Ulrich Volz, DIE
Twenty-five years after the initial agreement, a new Plaza Accord has been proposed and currency intervention is again the major issue. While the revaluation of one major currency, the Chinese yuan, has reinvigorated the debate, global imbalances and currency relations remain global problems. Rows over the recent intervention by the Bank of Japan to halt appreciation of the yen have highlighted once more the need for addressing these issues in a cooperative and multilateral framework. Unilateral and uncoordinated intervention, where countries effectively seek to lower the value of their own currency at the expense of other countries’ export competitiveness, clearly carry the danger of triggering a round of beggar-thy-neighbour policies and a protectionist backlash.
However, the prospects for a new Plaza Accord are dim: China will not be willing to give in to pressure from the US and other advanced or emerging economies that form the G20. Read more…
Author: Ronald I McKinnon, Stanford University
Going in
Behind much of the political clamour is the academic view that exchange rate ’flexibility’ is itself desirable — particularly as a way of correcting imbalances in foreign trade. Bowing to this foreign pressure, the People’s Bank of China (PBOC) announced in June it was unhooking its two-year old peg toward flexibility. Read more…
Author: Ashima Goyal, IGIDR
India’s exchange rate regime has evolved considerably over the reform years. In the current official view, it is a managed float. The market discovers the rupee value and the RBI intervenes only to reduce volatility. Excessive exchange rate volatility will hurt the Indian economy, which is increasingly dependant on international commerce. So what level of exchange rate flexibility should the RBI allow?
Until 2008, changes in the nominal rate kept the real exchange rate more or less constant. But the guiding hand behind the markets has weakened. In the past two years swings in nominal and real exchange rates exceeded 10 per cent. Read more…
Author: Yiping Huang, Peking University and ANU
After September 9, the renminbi suddenly accelerated its pace of appreciation against the US dollar. By September 15, it had appreciated more than 1 per cent. This represented a major departure from fluctuation within a narrow band after June 19, when the People’s Bank of China (PBOC) announced an increase in exchange rate flexibility. This change should be commended since it should help to manage external pressures, at least on the margin. Yet the timing of the change is suspiciously close to the scheduled hearing at the US Congress and other related events, and that will probably strengthen the impression that China moved on the currency because of the external pressure. This will not help China’s future dealings with international partners on renminbi exchange rate policy issues.
When President Hu Jintao visited the US in April this year, he made two important points on exchange rate policy reform: China would push forward the reform steadily regardless; and China would not change its policies under foreign pressure. Initially this caused some confusion in the international market. But the message, I thought, was subtle and clear: China is determined to reform, but noises in foreign countries are not helpful. Read more…
Author: Yiping Huang, Peking University
International anxiety over China’s currency exchange rate policy appears to be gathering momentum again, given that the yuan has risen only slightly since June 19 when the People’s Bank of China (PBOC) made it more flexible.
For my part, I think that although the recent global economic uncertainty warrants some caution, it is vital that the yuan rises more steadily over time in order to address economic imbalances and international reactions. Read more…
Authors: N R Bhanumurthy, NIPFP, and Chandan Sharma, FORE
Following the appreciation of the rupee/dollar exchange rate in early May and the expectation of interest rate hikes, there was some apprehension that the rate hike could result in further appreciation of the rupee and could hurt exports. In particular, it would hurt the low value-added exports from small and medium enterprises.
Since the recent recovery in exports happens to be the biggest factor for a sharp rise in industrial output growth, this imminent rate hike was opposed. Read more…
Author: Renu Kohli
The debate on exchange rate policy tends to surface during periods of prolonged and undue appreciation. At its centre is the degree of flexibility that is beneficial for the economy as a whole.
The issue is not about following a policy of persistent undervaluation, as occurred in China, but to avoid excessive determination by capital account movements; the shift to a flexible exchange rate regime in 1998 being widely accepted. There is a trade-off between exchange rate deployment to attract foreign capital and macroeconomic stabilisation vis-à-vis growth promotion through exports. Read more…
Author: Ronald I. McKinnon, Stanford University
Nobody disputes that almost three decades of US trade (net saving) deficits have made the global system of finance and trade more accident-prone. Outstanding dollar debts have become huge, and threaten America’s own financial future. Insofar as the principal creditor countries in Asia (Japan in the 1980s and 1990s, China since 2000) are industrial countries relying heavily on exports of manufactures, the transfer of their surplus savings to the saving-deficient US requires that they collectively run large trade surpluses in manufactures. The resulting large American trade deficits have worsened the ‘natural’ decline in the relative size of the American manufacturing sector, and eroded the US industrial base.
One unfortunate consequence of this industrial decline has been an outbreak of protectionism in the United States, which is exacerbated by the conviction that foreigners have somehow been cheating with their exchange rate and other commercial policies. Read more…
Author: Andrew Sheng, China Banking Regulatory Commission and Qatar Financial Centre Regulatory Authority
If a pack of wolves stalk a herd of buffalo, the herd can guard the weaker buffaloes. But if the wolves stampede the herd, they are able to take down the weakest buffaloes.
Financial crises behave similarly. The market speculators are like wolves that attack the weakest or most vulnerable economy. During the Asian crisis, the markets attacked Thailand first, because it had the highest external debt. This time, the markets attacked Greece, the most vulnerable economy in the EU. Greece may be the 27th largest economy in the world, but with a GDP of US$352 billion, it is only 3.1 per cent of the size of the EU. Read more…
Author: Peter Drysdale
Chinese President Hu Jintao is heading to Washington this week to take part in US President Obama’s conference on nuclear disarmament. President Hu’s participation in the meeting, 12-13 April, Washington time, is of interest well beyond what weight it might add to lessening the risks from the world’s nuclear arsenals.
Two days after the nuclear disarmament meeting, on 15 April, the US Treasury was scheduled to make its recommendation on whether China should be cited for manipulating its currency, the RMB (or yuan), ostensibly with the effect of underpricing exports, wracking trade and current account surpluses and causing unemployment and trade deficits in partners like the United States. Read more…
Author: Yiping Huang, Peking University and ANU
Tim Geithner’s decision to delay the US Treasury Department’s biannual report on international economic and exchange rate policy, originally scheduled for release on April 15, probably helped avert a potentially ugly confrontation between the world’s two economic superpowers. The ball is now in China’s court.
Recent developments suggest that China is about to amend its current soft peg of renminbi (RMB) to the US dollar (USD). I remain confident that the band of RMB/USD exchange rate will be widened modestly soon and the RMB could rise by 5-8 per cent before year’s end. Read more…
Author: Wang Yong, Peking University
By 15 April, the US Department of Treasury was scheduled to decide whether to label China as ‘a currency manipulator’. The prospect of a trade war, or even worse a currency war, between the world’s two largest economies has further destabilised the shaky recovery growth of the global economy. Given the extremely complicated nature of the RMB exchange rate in the global economic context, the US should undertake a rational cost-benefit analysis instead of threatening sanction.
Since July 2005, China’s RMB has appreciated by 21 per cent. But this has not significantly improved the US trade deficit, nor reduced China’s trade surplus. Read more…
Author: Ronald I. McKinnon, Stanford University
A compromise solution involving the appreciation of the yuan is possible. But the following basic points must be observed.
It is not possible for China to remove capital controls and expect a large outflow of private capital to offset its trade surplus (making a further buildup of official exchange reserves unnecessary) unless the yuan-dollar rate is expected to remain stable into the indefinite future. Otherwise, private Chinese investors would be loath to acquire dollar assets, as there would be a good chance that they would depreciate in terms of renminbi (yuan). Read more…
Author: Ronald I. McKinnon, Stanford University
Speculation is rife about when, not just if, China should exit from its policy of stabilising the yuan/dollar rate. Investment banks and hedge funds are making their usual one-way bets. Chinese officials are being closely quizzed for possible hints as to when the great event is going to happen. Governor Zhou Xiaochuan of the People’s Bank of China (PBC) is playing the role of Hamlet. Recently he told a press conference that the currency peg was a ‘special measure’ to help China weather the financial crisis. ‘These policies sooner or later will be withdrawn’. In seeming contrast, Premier Wen Jiabao declaimed on March 5, ‘We will continue to improve the mechanism for setting the renminbi and keep it basically stable at an appropriate and balanced level’.
But must China ever appreciate? Read more…
