LexisNexis(TM) Academic - Document

LexisNexis(TM) Academic - Document
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The Main Wire

December 1, 2004 Wednesday

LENGTH: 654 words

HEADLINE: US Econ Bergsten: Stop Pushing to Float the Renminbi

DATELINE: WASHINGTON

BODY:


By Ludovic Lapierre


Noted economist C. Fred Bergsten Tuesday
said floating China's renminbi is "neither feasible nor desirable."


Leading a panel discussion sponsored by his Institute for
International Economics, Bergsten repeated that "a decline in the
exchange rate of the dollar is needed to promote a more balanced
economic world situation".


However a change in the exchange rate is not enough, he said. Such
a shift has to be supported by appropriate economic policies, "in
particular, fiscal corrections in the United States and equally
important, stimulation of domestic demand in the surplus countries,"
aiming his remarks at Europe.


East Asia must play "a dominant role in the international
adjustment of the dollar and in the corrections of the international
imbalances," Bergsten said.


Promoting his think tank's report, "Dollar Adjustment: How far?
Against What?" IIE Director Bergsten described the recommendations of
the U.S. government, the International Monetary Fund and the Group of
Seven to float the renminbi independent of the dollar as "neither
feasible nor desirable."


"The Chinese say they don't want to yield to international
pressure," he said, "and we agree with them. We think they should reject
the proposals they have been presented by the U.S. government, with all
due respect, by the International Monetary Fund and the G7."
He said, "Those proposals have been to float the exchange rate and
increasingly reduce their capital controls. We think that's neither
feasible nor desirable."


Bergsten said, instead, China should "show its independence by
taking a different tack" by "revaluing its currency on a one-shot
basis." He said 20% to 25% is the IIE's recommended devaluation "without
yielding to the foreign pressure."


That would also help China deal with its internal economic
problems, he said. "China's economy has been overheated, and a
revaluation would dampen growth of their exports, thereby cutting their
economic growth to a more reasonable level, as they themselves have said
they want," Bergsten said. "It would sharply and directly reduce
inflation pressure by cutting the price of imports and domestic
substitutes and it would choke off the inflow of speculative capital
that has been an important factor expanding their money supply and
making it difficult to bring the overheating under control. So, he
concluded, "there's no dilemma for China."


Another panelist, IIE senior fellow Morris Goldstein said he
regretted that "neither the IMF, nor its largest stakeholder, the United
States, have not been willing to "speak out" about renminbi
manipulation. "International codes of conduct for exchange rate policies
don't mean much if they are not enforced," he said.


Panelist Michael Mussa, former IMF chief economist, said, "It is a
mistake to begin that activity, by doing something that the IMF has
never done in its history, to issue a criminal indictment against a
single member country for policies that have been pursued by many member
countries for years, and China is by no means the worst transgressor in
this field."


Goldstein continued, "There is not yet a public statement by either
the U.S. Treasury or the IMF, that the renminbi is undervalued." But
"the IMF can be a little bit more forceful," he said, and the IMF has
already been "persuasive in some occasions in the past, including when
China unified its exchange rate."


In the short term, "a weaker currency tends to help you to
stimulate employment," said Mussa. But "It does not mean the weaker, the
better," he said. Because in the long run, a weaker dollar "means that
the United States and its residents are poor in term of their real
living standards."

** Market News International Washington Bureau: 202-371-2121 **

LOAD-DATE: December 2, 2004