Undervalued Renminbi Is The Greatest Threat To Economic Recovery
Economics / China Currency Yuan Jan 26, 2010 - 04:49 PM GMTSir, Michael Spence is dead wrong in arguing that “the west is wrong to obsess about the renminbi” (January 22). An undervalued renminbi represents the single greatest threat to global economic recovery and a dangerous inflationary trigger within China.
The undervalued renminbi has helped to overheat the Chinese economy by attracting far more foreign direct investment into China than would otherwise exist – too much of a good thing. Currency speculators are also flooding into China in anticipation of an inevitable appreciation of the renminbi; this hot money is further fuelling the stock market and real estate bubbles. A floating renminbi would solve both of these problems.
Globally, because the renminbi is pegged to the dollar and the dollar has fallen significantly since March 2009, Europe as well as other countries around the world – from Brazil, Peru and Colombia to Japan, South Korea and Thailand – have lost competitive advantage to both the US and China. This has stalled recovery in many of these countries.
Prof Spence is right that the ultimate solution is a strong Chinese consumer. However, he wrongly portrays China as having a “high savings rate”. Much of China’s alleged “savings” is simply an artefact of China’s currency manipulation process that requires sterilisation of dollars and their re-export to America. This is Stalinist forced savings, not virtuous thrift.
Professor Navarro’s articles have appeared in a wide range of publications, from Business Week, the Los Angeles Times, New York Times and Wall Street Journal to the Harvard Business Review, the MIT Sloan Management Review, and the Journal of Business. His free weekly newsletter is published at www.PeterNavarro.com.
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