Renminbi revaluation: it’s a world war out there

[FarCenter]

Posted by Joseph Cotterill on Mar 17 11:35.

…To judge from the international institutions which were shoved into the fray over RMB appreciation on Wednesday, including the World Bank and UNCTAD. At least it means the debate is now getting to the broader problem — imbalances.

China bears, time to take note.

First up — the World Bank’s latest Quarterly Update on China is all about structural reforms to the country’s overheating export and property markets. As far as the Bank is concerned, those reforms now include strengthening the renminbi:

The key task for monetary policy in 2010 is to help mitigate the major macro and financial risks: high inflation expectations, unwarranted property price increases, and strained local government finances…

Inflation expectations and pressure can be contained by tightening the monetary stance and allowing the exchange rate to strengthen…

…Higher interest rates would make the tightening more convincing. A stronger exchange rate helps reducing inflation pressures by lowering the price of imports and toning down demand. It also helps rebalancing China’s pattern of growth towards more services and consumption and less industry and investment.

Unless, of course, you believe UNCTAD instead. In a recent policy brief, the UN trade body would appear to agree with Goldman Sachs that renminbi appreciation will get on quite fine by itself, thank you:

In fact, 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. Private consumption is rising at breakneck speed…

…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.

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