A Multilateral Problem<\/em><\/strong><\/p>\nMorgan Stanley Asia chairman Stephen S. Roach, they also note, says that America runs chronic trade and current account deficits with 87 other countries, some, including Saudi Arabia, that also peg their currencies to the US dollar. True enough, it is a multilateral problem, but China is the world’s second-largest economy with by far the largest trade surplus. <\/p>\n
China has the resources and size to develop a healthier, much more balanced economy by focusing on stimulating domestic consumption and by opening up international investment opportunities to Chinese savers – companies and individuals. That would go a long way toward a re-balancing of worldwide flows in trade and investment. <\/p>\n
Chinese leaders strive very hard to assure their place at the “adults” table in international assemblies and organizations. Their size, success and international aspirations should require that they play by the same rules as the “big boys” when it comes to foreign exchange, trade and investment as well. <\/p>\n
Roach contends that it’s Americans’ chronically low rate of savings is the root of the problem. Again, true enough. That, combined with an expansionary US monetary policy and fiscal policy focused on debt-fueled consumption, are important factors in US trade and current account deficits. And that’s a problem that could, and should, be addressed by changes in tax and monetary, as well as private sector bank consumer lending policies. <\/p>\n
While agreeing with these arguments, Chinese officials also point out the risks a yuan revaluation and floating exchange rate system would have – mainly a sharp slowdown in manufacturing and industry, concomitant drops in employment and heightened social instability. How well do these arguments hold up? <\/p>\n
If Chinese authorities did allow the yuan to float and its value did rise against the dollar, the Chinese would have that much more international buying and investment power. Of course, the authorities would have to loosen or eliminate regulations to allow that to flow more freely both inwards and outwards, but that would support efforts to stimulate domestic demand and consumption. <\/p>\n
And since so many US and European companies already manufacture so much in China, that demand could take up the slack created by a drop-off in Chinese exports. It would also increase imports, which would make the economy more balanced, but it may well not have as great an impact as many expect given that so many US manufacturers already source materials or have Chinese subsidiaries. <\/p>\n
Adopting a strategic combination of interrelated, mutually supportive measures such as these would also stimulate domestic investment and realign foreign exchange rates and money and investment flows. Large parts of China lack adequate infrastructure and services. It could be a boon to many, many millions of Chinese, who in largest part, haven’t participated to any great degree in the two decades and still running economic boom times. <\/p>\n","protected":false},"excerpt":{"rendered":"
Longstanding government fiscal and monetary policies are fundamental contributors to the global imbalances that have built up, and as recently as 2008-2009, broke out and all but tore down the as yet prevailing global financial and economic order. China pegging the value of its currency, the yuan, to the US dollar has been a significant contributing factor. Despite support among economists and analysts, it’s high time for China to make the transition to a floating exchange rate system and open up its domestic markets to international investment opportunities, both coming in and going out.<\/p>\n","protected":false},"author":62,"featured_media":8921,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_uag_custom_page_level_css":"","site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center 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government fiscal and monetary policies are fundamental contributors to the global imbalances that have built up, and as recently as 2008-2009, broke out and all but tore down the as yet prevailing global financial and economic order. China pegging the value of its currency, the yuan, to the US dollar has been a significant…","_links":{"self":[{"href":"https:\/\/inspiredeconomist.com\/wp-json\/wp\/v2\/posts\/7137"}],"collection":[{"href":"https:\/\/inspiredeconomist.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/inspiredeconomist.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/inspiredeconomist.com\/wp-json\/wp\/v2\/users\/62"}],"replies":[{"embeddable":true,"href":"https:\/\/inspiredeconomist.com\/wp-json\/wp\/v2\/comments?post=7137"}],"version-history":[{"count":0,"href":"https:\/\/inspiredeconomist.com\/wp-json\/wp\/v2\/posts\/7137\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/inspiredeconomist.com\/wp-json\/wp\/v2\/media\/8921"}],"wp:attachment":[{"href":"https:\/\/inspiredeconomist.com\/wp-json\/wp\/v2\/media?parent=7137"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/inspiredeconomist.com\/wp-json\/wp\/v2\/categories?post=7137"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/inspiredeconomist.com\/wp-json\/wp\/v2\/tags?post=7137"},{"taxonomy":"adace-sponsor","embeddable":true,"href":"https:\/\/inspiredeconomist.com\/wp-json\/wp\/v2\/adace-sponsor?post=7137"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}