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Finance Experts Criticize China's Currency Policy


Washington-based Asia and financial experts Thursday expressed frustration with the slow pace of China's commitment to allow market forces to play a bigger role in setting the exchange rate of its currency, the renminbi. VOA's Barry Wood reports.

Yusuke Horiguchi of the Institute of International Finance, a bankers group, says China will not succumb to U.S. pressure to revalue its currency. Morris Goldstein of the Peterson Institute of International Economics says the Chinese currency is so undervalued that the world's financial watchdog, the International Monetary Fund, is losing credibility because it allows the misalignment to persist.

Goldstein told the American Enterprise Institute forum that China is flagrantly violating international standards by manipulating the renminbi's value.

"Specifically, over the past year the Chinese have still been intervening in massive amounts to the tune of $15 to $20 billion a month to keep the renminbi from rising," said Morris Goldstein.

Goldstein says while the Chinese currency has risen six percent against the dollar since 2005, when the exchange rate is adjusted for trade flows, the renminbi has actually declined in value. A big Chinese revaluation, says Goldstein, is needed to correct a significant global financial imbalance. Lack of Chinese action, he says, is holding back a necessary general Asian revaluation.

"Some Asian currencies have appreciated like the [Korean] won, the [Thai] baht, and the [Indonesian] rupiah but many others including the renminbi, the Taiwan dollar and the [Japanese] yen and the Malaysian ringit have not," he said. "So, what happens to China exchange rate policy matters for the U.S. because it affects how real exchange rates move in Asia more broadly."

Other panelists were more cautious. Ann Krueger, a former top IMF official, said a rapid renminbi appreciation could destabilize the weak Chinese banking system. Stephen Roach of Morgan Stanley, investment bank said a big revaluation could adversely impact the U.S. need to draw in foreign currency to finance its huge and growing trade deficit.

"Lacking in domestically generated savings-and we [in the U.S.] have an appetite to grow [economically] - we have to import surplus savings from abroad in order to grow," said Stephen Roach.

Most panelists expect U.S.-China trade and financial friction to grow over the coming year. China has a record and growing trade surplus with the United States and the rest of the world.

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