Let It Renmin-Be?

Thursday, March 11th, 2010

Need I even say it? Despite fantastic economic figures just out from China (exports up 46% in February year-on-year, 8.7% economic growth in 2009), the world-wide financial/economic crisis is far from over. An ever-expanding list of governments (Greece, Spain, Ireland, the UK – yes, also including the US) have adopted the strategy of grabbing back desperately-needed economic growth through success in increasing exports. A corollary to that is that a weak currency is an awfully handy thing.

Except that it simply isn’t possible, from a mathematic point-of-view, for everyone to weaken their currencies at the same time. Someone’s money – preferably some country with a huge presence in international trade – has to go up in value, relatively. And this gets back to recent Chinese economic performance: China seems to be doing rather well, but it is also suffering from a notable bout of price-inflation. Furthermore, the Middle Kingdom’s currency, the Renminbi, is clearly undervalued – infamously so, even, due to the Chinese government’s explicit policy to protect it with various currency restrictions to be sure to keep it that way. So wouldn’t we find some nice economic solution for everyone by heeding the calls that have been issuing from US officials for some time now and convincing the Chinese government to cut that stuff out and allow the Renminbi to appreciate in value?

Not according to Tobias Bayer, in his opinion piece for the Financial Times Deutschland (Exchange rate policy: Dangerous game with the Renminbi). (more…)

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