Author: Ronald I. McKinnon, Stanford University

In the debate on whether China should appreciate its currency or keep it stable as I argue, it’s worth going back to some basics to clear things up.

For a ‘home’ country, consider the identity from the national income accounts:

X – M = S – I = Trade (Saving) Surplus

where X is exports and M is imports (both broadly defined), and S is gross national saving and I is gross domestic investment. Read the rest of this entry »

Authors: Mathew Joseph and Karan Singh, ICRIER

The sharp fall in US domestic consumption after the financial crisis has to be offset by a rise in net exports. For the US economy to recover then, the dollar must depreciate against the Chinese yuan. This devaluation is proving to be difficult, as the Chinese are resisting a yuan appreciation through massive intervention in the currency markets. The disastrous effects on the Japanese economy of the G7-managed appreciation of the yen in the mid-eighties have made the Chinese wary of a sharp appreciation in the yuan.

But while much focus is put on the US dollar’s depreciation against the yuan, what about the US dollar’s depreciation against the rupee?
Read the rest of this entry »

Author: Yiping Huang, Peking University and ANU

The global financial crisis could mark the beginning of the end for the US dollar’s dominance over the global economy.

But the US dollar will not leave the global stage in the foreseeable future. It will remain one of the world’s most important currencies for many years to come. But the difficulties in maintaining the US dollar’s role as a global reserve currency are large, and are best characterised by the ‘Triffin Dilemma’. Read the rest of this entry »

Author: Mohamed Ariff, University of Malaya

There is no need to belabour the point that flexible prices play a key role in correcting imbalances, be they between supply and demand for products, or between saving and investment or, for that matter, global imbalances of international capital or trade flows.

This is simply the magic of the price mechanism in text books. Read the rest of this entry »

Author: Rajiv Kumar, ICRIER

As expected, the Reserve Bank of India (RBI) signalled a tightening of its policy stance on 29 January. Given the huge liquidity overhang, the cash reserve ratio was raised by 75 basis points. The repo and the reverse repo rates were left unchanged.

With the Wholesale Price Index threatening to get into double digits, RBI was justified to act decisively to prevent inflationary expectations from becoming entrenched. Read the rest of this entry »

Author: Mohamed Ariff, MIER and University of Malaya

Amid relief that the worst is over, serious concerns remain over even the sustainability, let alone the robustness, of the world’s economic recovery. There is no suggestion that the recent economic statistics lack credibility, but there are worries in the minds of many that these data tend to gloss over the cracks underneath.

The year just past has turned out to be not as bad as feared. Read the rest of this entry »

Author: James Lister, Korea Economic Institute

Free elections are not part of North Korea’s political fabric, but Kim Jong-Il and his advisors are undoubtedly aware that the regime’s legitimacy will be challenged if it fails to meet its promise of achieving a strong and prosperous nation by 2012, particularly if it faces a leadership transition. The November 30 announcement of currency reform, entailing redenomination of the North Korean won such that 100 old won = 1 new won, appears to be a gamble that it can achieve that objective in an ideologically acceptable manner. It is a huge bet.

As clarified and adjusted over the course of the subsequent weeks (according to press reports, as official announcements remain lacking) the measures required residents to exchange old won for new won currency up to a limit of 500,000 old won per individual—equivalent to US$200 or less at unofficial market rates. Read the rest of this entry »

Author: Max Corden, University of Melbourne

In this changing global order, China’s monetary policy has been the target of persistent criticism. Accepted wisdom conjectured that, if the RMB were allowed to float, it would appreciate substantially more, and this would reduce China’s high current account surplus as well as the US deficit. The RMB was fixed to the US dollar in 1997, and then later unleashed in 2005. Until 2005 China was criticised for fixing the value of the RMB to the US dollar. After that it was criticised for not allowing the RMB to appreciate enough. But the real objection was clearly directed towards the large current account surplus.

What does this mean for the world generally, and East Asia in particular? Read the rest of this entry »

Author: Andrew Elek

In a new study, titled The Doha Round: ‘Death-Defying Agenda’ or ‘Don’t Do it Again’?, Stuart Harbinson examines the origins of the Doha Round in 2001 and its painfully slow progress in missing deadline after deadline since the original date set for completion of 2005.

Recounting the frustrations of seeking a simultaneous resolution on many matters, Harbinson points out that, ‘[f]inding a static point of equilibrium across a range of complex issues was a virtually impossible task.’ Read the rest of this entry »

Author: Greg Lopez

On November 9, Mr. Najib Razak, Malaysia’s Prime Minister and Finance Minister, announced at the Multimedia Super Corridor implementation council meeting that Malaysia was aiming for an average annual GDP grow rate of nine per cent until 2020. Realising later that the numbers were absurd, the government went into damage control mode.

Immediately, the local media edited the premier’s statement to six per cent. The next day, the Minister in the Prime Minister’s Department, in charge of the Economic Planning Unit, Read the rest of this entry »

Author: Suiwah Leung

So far, Vietnam has weathered the global financial crisis surprisingly well. The following chart from the latest IMF World Economic Outlook indicates that Vietnam is likely to outperform most of its Southeast Asian neighbours in terms of growth rates for 2009.

A number of factors contributed to this pleasant surprise. First, Vietnam was not sufficiently integrated with the world financial system for the crisis in the United States to have had significant impact on its banking sector. Read the rest of this entry »

Author: Suman Bery, NCAER

The concept of Asia has ever been fluid and elusive, for outsiders as much as within the region. The Romans invented the name to refer to the lands beyond the Mediterranean explored by Alexander. Asia Minor, Rome’s ‘near abroad’, is current day Anatolia in Turkey.

In the medieval era, it would have been more appropriate to talk in terms of Muslim, Chinese and Indian spheres of influence rather than a common Asian consciousness. Read the rest of this entry »

Guest Author: David Gruen, Australian Treasury

Reading The Great Crash of 2008 by Ross Garnaut with David Llewellyn-Smith encourages reflection on all the outrageous things that went on in the world’s major financial markets in the lead up to the Great Crash. You cannot read the early chapters of the book without a rising sense of anger at the self-serving and ultimately destructive behaviour on show. More importantly, the book underlines the changes needed to reduce the chances of the events of 2008 being repeated.

But my role here today is to discuss instead the book’s perspectives on macroeconomic management. I will comment briefly on three aspects of that topic: Australian exceptionalism; the consenting adult’s view of the current account; and asset price bubbles. Read the rest of this entry »

Author: Vo Tri Thanh

For Vietnam, and other East Asian economies, inflation is not a real issue in 2009. Instead, East Asian economies will have to pay more attention to the inflationary issue in 2010, and the governments of South Korea, China, and Indonesia will likely apply tightened monetary policies in the first or second quarter of 2010.

Vietnam shares similarities with these other East Asian countries; however, our macroeconomic situation in the past year was less stable than other East Asian economies. These past instabilities, relating to inflation, the financial system, the balance of payments, and the exchange rate, may place Vietnam in a more vulnerable position than other countries. So far, the inflation rate over the first seven months of 2009 has been rather low, at 3.2 to 3.3 per cent. However, the rate on a monthly basis is higher than that of the previous year. In addition, credit growth is also high, at 16 to 17 per cent during the first half of 2009. All these issues have raised fears over the possibility of inflation.

Read the rest of this entry »

Guest Author: Ashima Goyal, IGIDR

India’s pragmatic muddling through in financial reforms has served it well, protecting its financial sector from the extreme collapse seen in the western system. That collapse does not mean we should stop deepening our markets, but it does offer some lessons for the way forward. The focus must be on financial inclusion, development of domestic markets, and their contribution to the real sector.

The cautious stance on capital account convertibility must continue. Our strategy of liberalising equity flows while restricting debt flows has worked well since equity shares in the risk, but debt repayments are heavier in bad times. Emerging markets with a heavy dependence on foreign loans have suffered badly in this and in past financial crises. But there are pressures to further liberalise debt inflows to help develop debt markets and meet government and corporate financing requirements. So the question is, can domestic debt markets be developed without more active participation from foreign investors?

Read the rest of this entry »