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Tuesday, April 06, 2010

"Evaluating the Renminbi Manipulation"

Following up on the Joe Stiglitz post below this one, Martin Wolf has a different view. Unlike Stiglitz, he thinks that sanctions against China in retaliation for its currency policy are needed if China doesn't change its ways:

Evaluating the renminbi manipulation, by Martin Wolf, Commentary, Financial Times: The incumbent superpower has blinked in its confrontation with the rising one: the US Treasury has decided to postpone a report due by April 15 on whether China is an exchange-rate manipulator. ...

Is China a currency manipulator? Yes. ...China has controlled the appreciation of both nominal and real exchange rates. This surely is currency manipulation. It is also protectionist, being equivalent to a uniform tariff and export subsidy. Premier Wen Jiabao has protested against “depreciating one’s own currency, and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is protectionism”. The Chinese pot is calling the US kettle black.

Yet some economists deny this, offering four counter-arguments: first, while the intervention is huge, the distortion is small; second, the impact on the global balance of payments is modest; third, global “imbalances” do not matter; and, finally, the problem, albeit real, is being resolved. Let us consider each of these points in turn. ...[explains why he believes each point is wrong]...

I conclude that the renminbi is undervalued, that this is dangerous for the durability of global recovery and that China’s actions have not, so far, provided a durable solution. I conclude, too, that rebalancing is a necessary condition for sustainable recovery, changes in competitiveness are a necessary condition for rebalancing, real renminbi appreciation is necessary for changes in competitiveness, and a rise in the currency is necessary for real appreciation, given the Chinese desire to curb inflation.

The US was right to give talking a chance. But talk must lead to action. 

Also, please see this update from Paul Krugman:

Immaculate Transfer Strikes Again, by Paul Krugman: Oh, dear. Via Mark Thoma, I see that Joe Stiglitz has fallen victim to the doctrine of immaculate transfer...

[As Krugman explains here, Steven Roach - who is also mentioned by Martin Wolf - is another recent victim.]

    Posted by on Tuesday, April 6, 2010 at 05:43 PM in China, Economics, International Finance | Permalink  Comments (84)


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