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China's exchange rate policy promotes recovery of world economy
2010-02-09 08:42:56Source:People′s Daily OnlineAuthor:
By January 2010, RMB had appreciated by 21.2 percent against the U.S. dollar and 4.6 percent against the euro, compared to July 21, 2005 when the RMB exchange rate formation mechanism reform was adopted. According to statistics released by the Federal Reserve, during the period, the nominal broad dollar index depreciated by 8.7 percent, the nominal trade-weighted index of major currencies of the U.S. dollar depreciated by 12.5 percent. These figures show RMB has appreciated dramatically, while the U.S. dollar has depreciated greatly.
China's current trade surplus does not indicate RMB is severely undervalued. Actually, economists do not have effective methods to judge whether a currency is undervalued or not. China's trade surplus since 2005 is a result of the over consumption of the United States, with nothing to do with the exchange rate of RMB.
In face of current international financial crisis, China's economy has maintained steady and rapid progress, which itself is a major contribution to the world's economic stability. More specifically, China's contribution is mainly manifested in two aspects. On one hand, investment policies, the policies to stimulate domestic demand, and the corresponding global procurement not only helped major countries restore confidence, but also promoted the stability and development of China; on the other hand, letting the RMB exchange rate appreciate stably at a certain margin set a good example for the rest of the world and prevented the world from being caught in a vicious currency-devaluation competition, thus facilitating the world's economy to recover from the financial crisis.
At present, continuing to maintain the stability of RMB exchange rate has turned out to be the best choice to ensure the continuous recovery of global economy. This practice can help Chinese exporters promote export and the use of foreign capital, and help maintain the sustainable and steady development of China's economy, so as to serve as a stabilizer and engine for the recovery of the world economy. Moreover, it can also reduce the uncertainty on international financial market, stabilize international foreign exchange and capital markets, and thus expedite the recovery of world economy.
RMB appreciation is not the solution for the imbalance in global trade. In the past few decades, the imbalance in global trade originated mainly from the economic structures of major developed countries. So the RMB exchange rate has nothing to do with the problems now existing in world economy at all. In fact, RMB appreciation brings more adverse effects to western countries than positive ones. In the past tens of years, because of the RMB devaluation and export rebate policies, western countries, to a large extent, were able to enjoy low inflation, low living cost, and current standard of living, and western governments were able to reduce financial deficit and allow their people to consume excessively. Some insightful people in the west have realized that the call for the yuan to appreciate unilaterally is wrong. They behold that the unilateral appreciation of the yuan will do harm to American customers' interests as well as the recovery of world economy. The reason is that RMB appreciation may raise the prices of "Made-in-China" products, which will in turn reduce the purchasing power of U.S. customers. Under the current circumstance of high unemployment, spending will be curbed, which is definitely detrimental to U.S economic recovery.
In recent years, some western countries always focused on the issue of RMB appreciation and could not let go. It is worth noting that frequent advocators are politicians. It appears that only when the yuan is appreciated can the world be saved. Western countries hope to affect China's long-term economic strategies and win benefits by imposing various measures and pressures. The fact that the yuan appreciation is becoming one of the major focuses in international conferences, to a great degree, manifests that China is actually playing an increasingly significant role in international economy.
With the rise of China's economy, RMB is becoming more and more powerful in the world. In light of the principle of initiative, controllability and gradualness, the Chinese government is striving to improve the "managed floating exchange rate regime based on market supply and demand and in reference to a basket of currencies". China's economic policies, including the exchange rate policy, have been widely recognized by many insightful people in the international community. Robert A. Mundell, father of the Euro and the Nobel Laureate in Economics, said that there was no problem with RMB exchange rate and a stable RMB exchange rate could help the world economy out of the financial crisis.
The several crises in last century were caused either by the sharp appreciation or sustainable devaluation of the U.S dollar, which were essentially the results of the unscrupulous possession of various benefits under the U.S. dollar-based system on the U.S part. Specifically, as the center of the global currency system, the United States was under no supervision, so it took advantage of all policies audaciously to gain benefits under the U.S. dollar-based system. Therefore, the origin of financial crisis lies in the irrational international monetary system and the misuse of the international currency system by key currency countries.
China's current trade surplus does not indicate RMB is severely undervalued. Actually, economists do not have effective methods to judge whether a currency is undervalued or not. China's trade surplus since 2005 is a result of the over consumption of the United States, with nothing to do with the exchange rate of RMB.
In face of current international financial crisis, China's economy has maintained steady and rapid progress, which itself is a major contribution to the world's economic stability. More specifically, China's contribution is mainly manifested in two aspects. On one hand, investment policies, the policies to stimulate domestic demand, and the corresponding global procurement not only helped major countries restore confidence, but also promoted the stability and development of China; on the other hand, letting the RMB exchange rate appreciate stably at a certain margin set a good example for the rest of the world and prevented the world from being caught in a vicious currency-devaluation competition, thus facilitating the world's economy to recover from the financial crisis.
At present, continuing to maintain the stability of RMB exchange rate has turned out to be the best choice to ensure the continuous recovery of global economy. This practice can help Chinese exporters promote export and the use of foreign capital, and help maintain the sustainable and steady development of China's economy, so as to serve as a stabilizer and engine for the recovery of the world economy. Moreover, it can also reduce the uncertainty on international financial market, stabilize international foreign exchange and capital markets, and thus expedite the recovery of world economy.
RMB appreciation is not the solution for the imbalance in global trade. In the past few decades, the imbalance in global trade originated mainly from the economic structures of major developed countries. So the RMB exchange rate has nothing to do with the problems now existing in world economy at all. In fact, RMB appreciation brings more adverse effects to western countries than positive ones. In the past tens of years, because of the RMB devaluation and export rebate policies, western countries, to a large extent, were able to enjoy low inflation, low living cost, and current standard of living, and western governments were able to reduce financial deficit and allow their people to consume excessively. Some insightful people in the west have realized that the call for the yuan to appreciate unilaterally is wrong. They behold that the unilateral appreciation of the yuan will do harm to American customers' interests as well as the recovery of world economy. The reason is that RMB appreciation may raise the prices of "Made-in-China" products, which will in turn reduce the purchasing power of U.S. customers. Under the current circumstance of high unemployment, spending will be curbed, which is definitely detrimental to U.S economic recovery.
In recent years, some western countries always focused on the issue of RMB appreciation and could not let go. It is worth noting that frequent advocators are politicians. It appears that only when the yuan is appreciated can the world be saved. Western countries hope to affect China's long-term economic strategies and win benefits by imposing various measures and pressures. The fact that the yuan appreciation is becoming one of the major focuses in international conferences, to a great degree, manifests that China is actually playing an increasingly significant role in international economy.
With the rise of China's economy, RMB is becoming more and more powerful in the world. In light of the principle of initiative, controllability and gradualness, the Chinese government is striving to improve the "managed floating exchange rate regime based on market supply and demand and in reference to a basket of currencies". China's economic policies, including the exchange rate policy, have been widely recognized by many insightful people in the international community. Robert A. Mundell, father of the Euro and the Nobel Laureate in Economics, said that there was no problem with RMB exchange rate and a stable RMB exchange rate could help the world economy out of the financial crisis.
The several crises in last century were caused either by the sharp appreciation or sustainable devaluation of the U.S dollar, which were essentially the results of the unscrupulous possession of various benefits under the U.S. dollar-based system on the U.S part. Specifically, as the center of the global currency system, the United States was under no supervision, so it took advantage of all policies audaciously to gain benefits under the U.S. dollar-based system. Therefore, the origin of financial crisis lies in the irrational international monetary system and the misuse of the international currency system by key currency countries.
