EconoMonitor

Peterson Institute for International Economics

Roubini Topic Archive: Emerging Markets

  • The Internal Cost of China’s Currency Policy

    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 […]

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  • Egypt’s Rent Curse

    The recent overthrow of President Mubarak offers great hope for Egypt’s future political development. But the challenge of economic transformation will be no less important, and arguably as difficult. This challenge is viewed as one of achieving greater globalization and a greater role for markets inside Egypt. The more fundamental challenge, however, is different.

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  • A Breakthrough on the Reminbi?

    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.

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  • Getting Surplus Countries to Adjust

    It has been 80 years since John Maynard Keynes first proposed a plan that would have disciplined persistent surplus countries. But the Keynes Plan, like the subsequent Volcker Plan in 1972–74, was defeated by the major surplus country of the day (the United States and Germany, respectively), and today China (not to mention Japan or Germany) exhibits no enthusiasm for new revisions of these ideas.

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  • Obama Has to Tell Beijing Some Hard Truths

    With policymakers failing to make progress on the critical issue of global imbalances, America has no alternative but to put China on notice. Privately but promptly, Washington has to inform Beijing it will label it as a currency manipulator, back legislation treating the manipulation as an export subsidy, and take it to the World Trade Organization (WTO) if it does not let the renminbi rise significantly.

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  • Exchange Rate Policy in Brazil

    The macroeconomic regime implanted in Brazil during the second administration of Fernando Henrique Cardoso, and largely maintained by his successor, is typical of those of the advanced countries. The anchor is provided by an inflation-targeting regime (with a target inflation rate somewhat greater than in most advanced countries, of 4.5 percent a year, with a band around it of +/–2 percent). The exchange rate floats. The float is often described as free, but given the extent of recent reserve accumulation it would not qualify as a free float as understood by most economists. Fiscal policy has actually been more ambitious under the Lula regime, resulting for a time in a primary surplus of at least 4.25 percent of GDP (subsequently reduced to allow for a higher rate of public investment, and also temporarily reduced further to help combat the crisis). Monetary policy has then been directed at achieving the inflation target given fiscal policy, which—given history—has implied maintaining high interest rates.

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  • Currency Wars?

    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.

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  • Estimating the Impact of the Exchange Rate on the Trade Balance and Jobs

    As pressure mounts on China to let the value of its currency appreciate, a debate has occurred among some economists over the potential effect of such a revaluation on the US current account deficit—or on the number of jobs in the United States. In recent congressional hearings, C. Fred Bergsten (2010), director of the Peterson Institute for International Economies, testified that a correction of China’s exchange rate undervaluation would produce approximately 500,000 American jobs. The purpose of this note is to set forth calculations that provided part of the basis for this estimate, in particular, and to further clarify estimations of the impact of the exchange rate on trade and jobs more generally.

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  • The House and China: A Squeak, Not a Roar

    Nicholas R. Lardy says the House of Representatives’ bill to impose tariffs on China over the currency issue is unlikely to pass the Senate and would have minimal effects if it did.

    Edited transcript, recorded September 30, 2010. © Peterson Institute for International Economics.

    Steve Weisman: The House of Representatives, in one of its last acts before recessing, passed legislation to punish China over its failure to let its currency appreciate. Nicholas Lardy, senior fellow at the Peterson Institute, is here to talk about that bill and its prospects. This is Steve Weisman. Thanks, Nick.

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  • We Can Fight Fire with Fire on the Renminbi

    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.

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