And now for a belated Halloween feature...of sorts. (Boo!) For most Americans, the unmistakeable decline of the American economy--they wouldn't be all in a lather about throwing current lawmakers out en masse if not, eh--is tied to the growing prominence of China. Both find expression in election season advertising portraying political opponents as being in cahoots with the Chinese. Scapegoating others for largely homegrown ills is a regrettable but unsurprising American pastime. Now, every American generation has its set of bogeymen--Reds under the bed, Japan buying America, and now China competing unfairly with the United States via "currency manipulation" and other dastardly practices. Signs of conflict are rife and unmistakeable. Among other things, the last congress passed a bill that envisions hitting China with sanctions should it not change its erring ways.An obvious advantage for critics in constructing bogeymen is that they never change since they are the product of (often inaccurate) stereotypes and, for lack of a better term, A Lot of Yanquis Scaring Themselves Silly Over Their Steadily Declining Standard of Living. Famously incurious about the rest of the world, there is a bland whitebread sameness you get out here--especially in much of the US-dominated blogosphere. The IPE Zone being a far more cosmopolitan outlet in name and in deed, leave it up to yours truly to bring a distinctly different possibility: What if China is already well on its way to freely floating its currency? Also, what if constant pestering by haughty Americans busy trying to devalue their way to prosperity doesn't go down too well and instead slows down a move towards a freely floating renminbi?
Well, Reuters has just the article for this contrarian line of thinking from an adviser to that bastion of financial chicanery, the People's Bank of China (PBoC):
The yuan needs to be more flexible and appreciation is the long-term trend for the currency, an academic adviser to the People's Bank of China said on Friday. Li Daokui, who sits on the central bank's monetary policy committee, also said that exchange rate adjustment should be based on domestic factors and not just on external pressure.To bolster this line of argument, consider that the Chinese may not have been so unfailingly hostile to the US proposal to limit G20 countries' external imbalances to ±4% even if doing so targeted chronic surplus countries like the PRC and Germany. Supposedly, there already was legislation underway in China itself to limit the relative size of its external surplus, hence it needed little prodding to begin with. But, as I mentioned above, perhaps the key thing is for the PRC to implement these changes on their own instead of them perceiving that they are being browbeaten into making them:
"In the long run, the renminbi needs to appreciate if market forces determine that," Li, a professor at Tsinghua University, told an academic forum. The renminbi is the official name of the yuan. Li said a 3-5 percent annual pace of appreciation, about the same as before the global financial crisis, would be regarded as "gradual" and would be acceptable to the government.
China had let the yuan gain nearly 3 percent against the dollar since it was depegged on June 19, but it has pushed the exchange rate back down by about 0.6 percent over the past two weeks. Analysts believe that the currency is still on course to rise and that the central bank has been making good on its pledge to introduce more two-way volatility in the exchange rate.
A stronger yuan is seen as a key component of China's reforms to cut its trade surplus and contribute to the rebalancing of the global economy. Critics say that an undervalued yuan gives Chinese exporters an unfair advantage. Li said that China's trade surplus would be greatly reduced over the next three years as the government enacts reforms to restructure the economy.
At G20 finance minister meetings in South Korea earlier this month, the United States proposed that countries set a target of capping either their current account surplus or deficit at 4 percent of gross domestic product.Short of buying adult diapers for a majority of the US population, that should help calm American fears about China, right?
Although rejection of the proposal was virtually unanimous, it has found a slightly more receptive audience in China. "We have the economic and political foundation to reach an agreement," Li said. But he added that China would not want to accept any imposed standards or external checks and would only set targets of its own volition.
Yi Gang, a central bank vice governor, has said that China is drafting a plan to limit is current account surplus to less than 4 percent of GDP over the next three to five year.
