Author: Sourabh Gupta, Samuels International
On 2 November, on the sidelines of the G20 leaders meeting in Cannes, Zhang Tao, director general of the international department of the People’s Bank of China (PBoC), averred that China’s foreign exchange management strategy was based on ‘the principle of safety, liquidity and adding value’.
Given the US$271 billion in reserve losses presumed to have accrued during the 2003-2010 period as a result of the US dollar’s depreciation, this notion of ‘safety’ appears to be a rather elastic one. Read more…
Author: Jeffrey Frankel, Harvard University
All of a sudden, the Chinese renminbi is being touted as the next big international currency.
It has begun to internationalise along a number of dimensions in the last year or two: an RMB-denominated bond market has grown rapidly in Hong Kong, as well as a market in RMB-denominated bank deposits. Read more…
Author: Wang Yong, Peking University
For those interested in the internationalisation of China’s national currency, the renminbi, and hence anyone interested in the future of the global currency system, Vice Premier Li Keqiang’s recent visit to Hong Kong was an important event.
The Vice Premier announced on 17 August 2011 the central government’s ‘Six Measures’ to support Hong Kong’s economic development — a move welcomed by Chinese media and businesses. The measures include a quota of RMB20 billion (US$3 billion) for renminbi Qualified Foreign Institutional Investors (RQFIIs) to invest in mainland China’s RMB-denominated securities market; allowing mainland Chinese investors to conduct business in the Hong Kong Stock Exchange’s exchange-traded funds; and issuing RMB20 billion in RMB-denominated bonds in Hong Kong. Read more…
Author: Yang Yao, Peking University
China’s exports have resumed their robust growth since last year. The World Bank predicts a 3.5 per cent growth rate for the world economy this year, and most analysts also predict that the US economy will grow at a similar rate.
As a result, external demand for China’s exports will be strong. Read more…
Author: Barry Carin, CIGI
The G20 is again in the news following the February 2011 Finance Ministers’ meeting with media coverage dominated by news that leaders agreed on a ‘list of indicators to identify and reduce trade imbalances.’
This development comes under France’s G20 presidency, which inherits an unfinished agenda from past G20 summits. Read more…
Author: Peter Drysdale
China’s current account surpluses are the target of growing criticism in the international policy community. They are seen as a central element in the imbalance in the global economy.
They are seen as a source of vulnerability to a second round crisis in international financial markets. Read more…
Author: Peter Drysdale, ANU
The G20 Finance Ministers’ meeting in Paris over the weekend clinched a deal on the indicators that will be used to evaluate and to tackle the economic imbalances, said to be at the heart of managing recovery from the global crisis.
Importantly, China signed on to the deal, the announcement of which reports that trade balance and investment flows will be monitored ‘taking due consideration of exchange rate, fiscal, monetary and other policies.’ Read more…
Author: Peter Drysdale, ANU
China’s emergence as the second largest economy in the world, and on some reckoning an economy that is already nudging America for the top spot, inevitably raises questions about how this remarkable and rapid shift in world power will affect the global economic order as we know it and what role China can now be expected to, and will, play in running the world economy.
At the end of the Second World War, the United States bequeathed the GATT, IMF and World Bank-based international system and assumed leadership in establishing the rules and norms in running the global economy. Read more…
Author: Wendy Dobson, University of Toronto
China’s embrace of global institutions and their rules and norms has helped guide its spectacular economic growth and integration into the world economy.
But China’s impact on the global economic order is still an open question. Its sheer size and dynamism make it a force to be reckoned with. Read more…
Author: Peter Drysdale, ANU
American authorities have been baying for months about flexing up the renminbi (RMB — the Chinese currency) to help turn around China’s current account surpluses and reduce America’s deficits. Whether a sharp appreciation in the rate of exchange between the RMB and the US dollar should be relied on as the main instrument for effecting that change smoothly is a much debated question.
Appreciation of the RMB is certainly one crucial part of the solution, but there are also more fundamental structural problems that need to be dealt with to cut back China’s net international savings and achieve the reverse in the United States. Read more…
Author: Yiping Huang, Peking University and ANU
One of the policy issues at the top of the agenda at the recently concluded G20 summit was global rebalancing. Achieving strong, balanced and sustained growth was identified by the G20 leaders as a key policy objective.
While G20 officials agreed to allow greater roles for market forces in exchange rate formulation, they also emphasised the need for structural reforms in order to resolve global imbalances. Read more…
Author: Yiping Huang, Peking University and ANU
Today, the National Statistics Bureau released October’s batch of economic data. Almost all indicators for economic activity, including fixed asset investment, industrial production and even retail sales, slowed in October (as measured by year-on-year growth rates). The whole country’s attention, however, was firmly fixed on inflation data. CPI was up by 4.4 per cent year-on-year in October, compared with 3.6 per cent in September and the consensus forecast of 4.0 per cent.
This was the highest level reached in 25 months. Food prices, in particular, increased by more than 10 per cent. Read more…
Author: Barry Eichengreen, Berkeley
As the G20 assembles in Seoul, it has a full plate. There is the need for continued progress on strengthening financial regulation – on getting countries to harmonise their still divergent approaches to regulatory reform and to push the Basel III reforms of capital adequacy through to their logical conclusion. There is the continuing inadequacy of international arrangements to wind up insolvent cross-border financial institutions. There is the need to coordinate monetary and budgetary policies so as to reconcile fiscal consolidation in some countries with the need for continuing policy support from others for what remains a less-than-certain recovery. There is the need for agreement on the global financial safety net, the pet project of the Korean hosts. There is the need to push ahead with quota reform at the IMF and to agree on reducing the number of European seats on the fund’s executive board.
No doubt the G20’s communiqué will touch on all these areas. But there is also the elephant in the room, namely China’s exchange rate. 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: Yiping Huang, ANU and Peking University
The US Congress is increasingly agitated by China’s exchange rate policy as US politicians blame the undervalued renminbi for their own economic problems. For now, however, the Chinese government is content with trying its best to avoid a sharp currency adjustment that could significantly damage China’s export sector.
Fortunately, risks of a trade war still look manageable. Both the US and Chinese governments appear to favour multilateral frameworks for resolving the renminbi dispute. This should help reduce the risk of direct confrontation between the US and China. After all, economic imbalances are a global issue. A critical question, however, is what specific policy approach the G20 might adopt for dealing with such problems.
Read more…
