{"id":476137,"date":"2010-03-26T11:41:07","date_gmt":"2010-03-26T15:41:07","guid":{"rendered":"tag:www.economist.com,21005639"},"modified":"2010-03-26T11:41:07","modified_gmt":"2010-03-26T15:41:07","slug":"choosing-their-moment","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/476137","title":{"rendered":"Choosing their moment"},"content":{"rendered":"

VOX has posted a piece<\/a> by Yiping Huang an economics professor at the China Center for Economic Research at Peking University, who takes aim at Paul Krugman’s arguments for confronting China over its currency peg. It isn’t the most persuasive case I’ve seen made for the play-it-cool approach. In particular, the argument that a Chinese revaluation would cut global growth by 1.5% seems as unsupported as the suggestion that the RMB peg is costing the world a similar amount of growth (unless we’re talking about a sudden, massive, disorderly revaluation, which China would obviously not accept). I do think this is right, however:<\/p>\n

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So what would happen were the Obama administration to follow Krugman\u2019s advice? First of all, it would delay, not accelerate China\u2019s exchange rate policy reform. On 6 March, the People\u2019s Bank of China Governor Zhou Xiaochuan made it clear that the current soft peg of the renminbi to the dollar was a temporary response to the global financial crisis and that this would have to end. These statements clearly suggest that the Chinese authorities are searching for an appropriate time to exit from the soft peg and I think this could happen at any moment.<\/p>\n

But finding the appropriate time is not always easy. The China-US policy game on the renminbi exchange rate can be best characterised as a “prisoners\u2019 dilemma”. It is important to keep in mind that, like American politicians, Chinese leaders also have to entertain domestic political pressure. And to be seen as giving in to American pressure can substantially weaken the leaders\u2019 political standing and capacity to act in everyone\u2019s best interests. China is more likely to move ahead quickly if the US maintains a calm and rational stance. This was largely what happened in the lead up to the July 2005 exchange rate reform.<\/p>\n<\/blockquote>\n

Those advocating strongly for a Chinese revaluation seem to approach the peg as if it is an immutable part of Chinese economic policy. It isn’t. China was steadily appreciating its currency during the three years preceding the crisis. Its decision to halt this process was a countercyclical one. Chinese officials have repeatedly made this point, and have repeatedly said that a return to appreciation is just a matter of time. As Mr Huang notes, a week before Mr Krugman’s latest firebreathing column on the issue People\u2019s Bank of China Governor Zhou Xiaochuan said that the peg was among the interventions that would end as recovery solidified. And today, we read this<\/a>:<\/p>\n

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China may allow the yuan to trade more freely against the dollar, while avoiding an abrupt revaluation that would wreck its exports, according to Fan Gang, an adviser to the country\u2019s central bank.<\/p>\n

\u201cChina may resume a managed float of its exchange rate, particularly if the uncertainty of the overall post-crisis economic situation diminishes,\u201d Fan wrote in an opinion piece published today in China Daily, a government-backed English language newspaper. \u201cIf the adjustment came abruptly, Chinese companies would suffer a sudden loss of competitiveness.\u201d<\/p>\n<\/blockquote>\n

This is the direction in which China is moving. It might be worth giving them a little breathing space to begin the adjustment, rather than rushing forward to impose tariffs before they have the opportunity to do what America wants them to do without looking like they’re caving in to American pressure.<\/p>\n","protected":false},"excerpt":{"rendered":"

VOX has posted a piece by Yiping Huang an economics professor at the China Center for Economic Research at Peking University, who takes aim at Paul Krugman’s arguments for confronting China over its currency peg. It isn’t the most persuasive case I’ve seen made for the play-it-cool approach. In particular, the argument that a Chinese […]<\/p>\n","protected":false},"author":4534,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-476137","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/476137","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/4534"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=476137"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/476137\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=476137"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=476137"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=476137"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}