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Thursday, December 10, 2009

On China's exchange rate policy

Martin Wolf says China must appreciate its currency otherwise the world is heading for train wreck.

Jim O'Neill, Chief Economist at Goldman Sachs, counters that after almost 17% appreciation during the past few years, he is not sure Chinese Yuan is still undervalued. He is asking people to look at the evidence on the ground that China is actively restructuring its economy and China's domestic consumption is fast rising.

Dani Rodrik of Harvard University argues while most people focus on China's exchange rate, nobody is offering China a way out of its currency dilemma, and China is in no position to revalue its currency as demanded, as a large Yuan appreciation, say 25%, will kill China's economic growth by 2%.

The bottom line is China can't rely on export as its sole growth engine in the future; and the rest of the world should not blame all problems to China's currency policy.