Monday, October 11, 2010

Baseline Scenario: Why China is unwilling to revalue the yuan

An essay of mine was published earlier this month on the Baseline Scenario economics blog. It talks about China's yuan policy, and some of the reasons why Beijing will push back against external efforts to let the renminbi appreciate against other world currencies.

The essay has generated a lot of discussion, both online and off. It will be interesting to see the end result of the current back-room negotiations over exchange rates, but I am highly skeptical of talk that China will let its currency float. We heard the same hopeful talk about China freeing the yuan from the dollar peg back in 2005 and Beijing's "commitment to allow the yuan to be set by the interaction of demand and supply forces." But the peg remained and China only let the Yuan appreciate slowly (about 17% in five years). For reasons that I explained in the essay, I think the best that the U.S. and other countries can hope for is a very gradual appreciation of the yuan that does not threaten China's export-driven growth or social stability.

No comments:

Post a Comment

All comments will be reviewed before being published. Spam, off-topic or hateful comments will be removed.