Free floating RMB no key to rebalancing global economy
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The imbalances of the global economy cannot be resolved by a free floating Chinese currency, instead, the problem needs to be addressed by bold multilateral responses, the United Nations Conference on Trade and Development (UNCTAD) said on Tuesday.
In a policy brief, the UN agency said that the burden of rebalancing the global economy should not be put on a single country and its currency. It argued that "to leave currencies to the vagaries of the market" would not help solving the problem.
The imbalances in world trade and the global economy actually lie in systemic failures, which require comprehensive and inclusive multilateral action, it said.
According to the policy brief, as a response to the current global crisis that originated elsewhere, China has done more than any other emerging economy to stimulate domestic demand, and as a result its import volume has expanded significantly.
Chinese private consumption increased by "a breakneck speed" of 9 percent in 2009 in real terms, dwarfing all the other major countries' attempts to revive their domestic markets, it said.
"Expecting that China will leave its exchange rate to the mercy of totally unreliable markets and risk a Japan-like appreciation shock ignores the importance of its domestic and external stability for the region and for the globe," it added.
UNCTAD noted that both absolutely fixed/pegged and fully flexible/floating exchange rate systems were "suboptimal". Experiences show that these "corner solutions" have added to volatility and uncertainty and aggravated the global imbalances.
It called for debates "to explore new common formulas for exchange rate management that increase consistency between trade and financial flows in a globalized economy."
"Even those who criticize governments for stabilizing exchange rates and intervening in financial markets generally recognize that a viable long-term solution to the problem of massive trade distortions and global imbalances cannot be expected from individual central banks trying to find a unilateral solution to a multilateral problem like the exchange rate," it said.
