Debate On China’s Exchange-Rate Policy Continues

According to a report by Bloomberg, the U.S. Treasury Secretary, Timothy Geithner, has said that China is more likely to move towards a flexible currency policy as its current policy of pegging the yuan against dollar limits its ability to conduct monetary policy. Speaking at an American Society of News Editors conference in Washington on Tuesday, Geithner said, “As a strong, large, independent, growing economy, it doesn’t make sense for that country to run a monetary policy exchange-rate regime that effectively lets the Federal Reserve set interest rates for their economy.”

Earlier, President Barack Obama, in private a meeting with his Chinese counterpart Hu Jintao in Washington urged him to move to “more market oriented exchange rate.” Chinese president was cited by Chinese official news agency as saying that China wouldn’t yield to external “pressure.” Geithner reacted by saying that Obama administration “will be very forceful and aggressive in making sure we are promoting changes” in China. U.S lawmakers say that yuan, which is pegged at about 6.83 to one dollar since July 2008, gives Chinese exporters an unfair advantage over U.S. manufactures. As a result, the U.S trade deficit with China reached to $ 227 billion. Hence, the U.S lawmakers have urged the Obama administration to increase pressure on China to revalue the yuan.

Bloomberg news carried out a survey among 19 analysts and they forecast that China will allow the yuan to appreciate by June 30 this year in order to curb inflation. Meanwhile, Nouriel Roubini, a professor of economics at New York University, has said that China would allow its currency to appreciate gradually, probably starting as early as May. Roubini believes that China would allow its currency to appreciate by 3 or 4 percent a year. In an interview to Bloomberg television’s “In Business with Margaret Brennan,” Roubini said that rising social tensions and economic slowdown in China would limit the yuan’s rapid appreciation and that this move will be enough for Obama administration to say that their efforts are paying off. “It’s not at all a game changer, absolutely, but politically that’s the maximum that China can do,” said Roubini, who predicted the global financial crisis. The move would “allow at least the U.S. to signal there is some movement and prevent the U.S. from declaring China as a currency manipulator,” he added.