To appreciate or not to appreciate RMB

For people who are interested in speculating foreign exchanges, the tug of war on Renminbi (RMB) between China and the US is definitely a heart wrenching drama.

The 2009 Nobel Prize economics laureate Paul Krugman on March 12, 2010, at an Economic Policy Institute event in Washington, DC, USA, proposed that global economic growth would be about 1.5 percent higher if China stopped undervaluing its currency and running trade surpluses. He added China’s currency policy has a “depressing effect” on economic growth in the US, Europe and Japan. “If we could get some change in China’s currency policy, it would help the world,” Krugman said today. Krugman’s statement certainly added fuel to a much heated debate in recent years and especially in recent days.

This saga is definitely a tale of two nations. The pressure from the US side is mounting. US Senators including Charles Schumer and Lindsey Graham proposed legislation in mid March that would require the U.S. government to determine if a nation’s currency is undervalued and would make it easier to impose import duties if deemed so. The draft bill was proposed after 130 lawmakers wrote to Treasury Secretary Timothy F. Geithner demanding tariffs on Chinese imports. Geithner has been urged by some members of Congress, economists and labor and business groups to label China a “currency manipulator” on April 15 when he issues a semiannual review of world currency policies.

In an exclusive interview with Xinhua News Agency on December 27, 2009, “China would not yield to foreign pressure for the appreciation of its currency in any form,” Chinese Premier Wen Jiabao said. He further stated: “A stable Chinese currency is good for the international community.……China will work together with other countries to curb trade protectionism and push forward with the Doha Round trade negotiations.……We all know this, but what we need now is the willingness to take action.….Chinese exporters need to upgrade their export systems and improve product quality in order to keep their global market share amid an unfavorable trade climate.”

More recently, on March 24, 2010, Chinese Vice Commerce Minister Zhong Shan in a speech at the US Chamber of Commerce also said that the appreciation of RMB, the Chinese currency, is not “a good recipe” for solving US-China trade deficit because US-China trade deficit is caused by the shift in international division of labor and of industries against the backdrop of globalization.”


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