Roubini Topic Archive: Currencies
By Joseph E. Gagnon, Nicholas R. Lardy, and Nicholas Borst It is currently costing the Chinese central bank about $240 billion per year to hold down the value of the Chinese currency relative to other currencies. This cost is growing rapidly. The cost would decrease significantly if China allowed its currency to float and began […]
There are encouraging signs that a breakthrough may have been achieved in the long-running debate over the exchange rate of China’s currency, the renminbi. Its real rate against the dollar is now rising at an annual rate of 10 to 12 percent, which if continued would complete the needed correction of 20 to 30 percent over two to three years, and official US reactions suggest that assurances that the adjustment will continue may have been received. This movement appears to derive from effective US pressure, increasing expressions of concern about the issue from other countries (especially a number of major emerging markets) and, most importantly, changes in economic conditions in China itself.
More than a dozen countries, including Brazil, China, India, Japan, and Korea, have been intervening in the foreign exchange market to prevent their currencies from appreciating. There are fears that the second dose of quantitative easing in the United States (dubbed QE2) may worsen currency appreciation. These developments raise the prospect of a currency war, which the Group of Twenty (G-20) fears is gathering steam. Because many countries are simultaneously seeking to improve their balance of payments position, many are seeking a more competitive exchange rate. The laws of mathematics mean that some must be disappointed: A weaker exchange rate of one country implies a stronger rate of some other country or countries.
Op-ed in the Financial Times October 4, 2010
© Financial Times
China continues to manipulate the renminbi to the extent that it is now undervalued by at least 20 percent. Japan has resumed intervention on a massive scale to lower the yen. Switzerland recently spent more than $100 billion to keep its franc from rising. All these countries, and a number of others, already run large trade surpluses and hold huge reserves but nevertheless want to weaken their exchange rates to boost growth through exports.
William R. Cline discusses his findings that show how an appreciated Chinese currency would, over two years, lower China’s current account surplus.
Edited transcript, recorded September 16, 2010. © Peterson Institute for International Economics.
Steve Weisman: With the issue of China’s currency heating up, we have today William Cline, senior fellow at the Peterson Institute for International Economics, to talk about the implications and some of the aspects of the debate. This is Steve Weisman at the Petersen Institute. Welcome, Bill.
William R. Cline: Thank you.
Steve Weisman: You’ve done a recent study of one aspect that’s been disputed by China and some others on the issue of whether or not—if China’s currency were to rise—it would have much of an impact. Tell me about some of your conclusions.
Testimony before the Hearing on the Treasury Department’s Report on International Economic and Exchange Rate Policies, United States Senate Committee on Banking, Housing and Urban Affairs.
Keynote address at the World Trade Week Kickoff Breakfast in Los Angeles, California May 3, 2010
I am delighted to help launch this 84th annual World Trade Week in Los Angeles, which is truly the “capital of the Pacific Rim” as last year’s keynote speaker suggested. I congratulate the ports of Los Angeles and Long Beach, the city of Los Angeles, and the state of California for their leadership in promoting an active and constructive trade policy in the United States.
Trade and World Economic Growth
Nicholas R. Lardy suggests the Obama administration may avoid labeling China a currency “manipulator” to keep cooperation going on other issues.
Edited transcript, recorded April 1, 2010.
Intellectually, there are two ways of being in denial about renminbi undervaluation. The first is to succumb to what John Williamson has called the doctrine of immaculate transfer. Paul Krugman, in his recent blog posts, has been taking Stephen Roach and Joe Stiglitz to task for doing so: i.e., for their claiming that China’s current account surpluses have little to do with exchange rates and that surpluses are all about savings and investment in each of the trading countries. Specifically, raising savings in China will somehow—magically and automatically—translate into current account adjustments irrespective of changes in exchange rates (hence Williamson’s immaculate transfer metaphor).
If China does let its currency start rising again, as widely speculated, the overriding issue is whether it will move quickly and substantially enough. The renminbi is undervalued by about 25 percent on a trade-weighted average basis and by about 40 percent against the dollar. No one expects China to curtail this huge misalignment in a single step. But it needs to both make a sufficient “down payment” to be credible and assure that appreciation will continue until the undervaluation has been eliminated.