World Bank Backs China's Cautious Approach to Liberalizing Forex System

[Dover]

Friday September 5, 2:38 PM
World Bank backs China's cautious approach to liberalizing forex system


BEIJING, Sept 5 (AFP) - The World Bank said it supports China's cautious approach to liberalizing its exchange rate system amid mounting calls for the Chinese currency, the yuan, to be allowed to strengthen.

The bank backs China's decision to move gradually, given the weakness of its financial system and the need to make adjustments as a result of World Trade Organization membership, a ranking World Bank official said at a briefing Friday.
"We agree with an incremental approach to most things," Deepak Bhattasali, lead economist for the World Bank in China, told AFP. "An incremental approach in most development processes is better."

The World Bank's comments came at the end of a week marked by renewed focus on the yuan, said by many critics to be sharply undervalued and so giving Chinese exporters an unfair advantage.
The yuan has been pegged to the US dollar for the past nine years and has fallen along with the American currency in recent months.

..snip..

The US trade deficit with China reached 103 billion dollars -- about a quarter of the total US deficit -- in 2002. So far in 2003, it is up another 27 percent from last year. World Bank Senior Economist Dominique van der Mensbrugghe told the briefing in Beijing that the real problem was to be found inside the United States itself.

"The trade deficit in the United States is a macroeconomic phenomenon and it's not a phenomenon that is related to the trade deficit it has with China," he said....MORE >>

http://asia.news.yahoo.com/030905/afp/030905063812top.html

[Enraged_Ape]

1. I didn't know Chinese currency was based on sheepskin condoms

You learn something new every day.

Or maybe I just haven't had my coffee yet.

[salin]

2. I think this may be very significant - we should start following the story

Note Krugman's article: http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=103&topic_id=9427

Here are a few items from the article linked in the above linked thread:

All the world knows about the Iraq about-face: having squandered our military strength in a war he felt like fighting even though it had nothing to do with terrorism, President Bush is now begging the cheese-eaters and chocolate-makers to rescue him. What may not be equally obvious is that he's doing the same thing on the economic front. Having squandered his room for economic maneuver on tax cuts that pleased his party base but had nothing to do with job creation, Mr. Bush is now asking China to help him out.

---------snip

Instead, however, he's decided to plead with the Chinese for help.

Admittedly, it didn't sound like pleading. It sounded as if he was being tough: "We expect there to be a fair playing field when it comes to trade. . . . And we intend to keep the rules fair." Everyone understood this to be a reference to the yuan, China's supposedly undervalued currency, which some business groups claim is a major problem for American companies.

By the way, even if the Chinese did accede to U.S. demands to increase the value of the yuan, it wouldn't have much effect unless it was a huge revaluation. And China won't agree to a huge revaluation because its huge trade surplus with the U.S. is largely offset by trade deficits with other countries.

http://www.nytimes.com/2003/09/05/opinion/05KRUG.html

Salin's comments: DUers, I have the gut inkling that this is a big - but unnoticed story. Read the Krugman column... then I ask, who among us has some background/experience/knowledge of this area to shed some light as to the implications of this? And if this indeed has been an approach of late of the Admin - isn't it intersting that the World Bank - it appears at first glance - is working to assist with this effort? What might the implications of this development mean?

Again, I suggest, that this is potentially big. Help me keep this kicked for awhile so more DUers wander to the thread and read it. So many items like this come in and pass through because we don't initially recognize the significance. This might be one that deserves greater attention. Thanks.

[starroute]

3. Doesn't this tie in with Bush's 6-point economic recovery plan?

See the discussion at this thread:

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=102&topic_id=98477

Point #3 is "opening overseas markets to American products."

Isn't this uncomfortably reminiscent of the Open Door Policy?

China was in political and economic disarray as the end of the 19th
century approached. The giant was not recognized as a sovereign nation
by the major powers, who were busy elbowing one another for trading
privileges and plotting how the country could be partitioned. The
imperial nations sought spheres of influence and claimed
extraterritorial rights in China.

The United States took Far Eastern matters more seriously after the
Spanish-American War, when they came into possession of the
Philippines. In the fall of 1898, President McKinley stated his desire
for the creation of an "open door" that would allow all trading
nations access to the Chinese market.

http://www.u-s-history.com/pages/h908.html

That's got to play about as well in China as references to Crusaders do in Iraq.

[salin]

4. Interesting connection

makes sense to me.

I have just started a GD thread tying this item and the Krugman article together - please come and add this insight to it. :hi: