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Email this citationCIAO DATE: 10/04
Adjusting China's Exchange Rate Policies
Morris Goldstein
June 2004
Abstract
During the past year, there has been considerable debate about, and much international criticism of, China's exchange rate and its currency regime.
Yes, criticism of China in the United States would likely be more muted if the ongoing recovery were not so "jobless," if employment in the US manufacturing sector had not (mainly for other reasons) declined so much in the three-year run-up to this presidential election year, if so much attention were not focused on the very large bilateral US trade deficit with China instead of China's economically—more meaningful overall balance-of-payments position, and if the United States had not done such a poor job of improving its saving-investment imbalance—particularly in the public sector.
Yes, Euroland's criticism of China would no doubt be less pronounced if Europe had not compiled such an anemic average growth performance over the past three years, if the European Central Bank had been somewhat more aggressive in lowering interest rates, and, most telling, if the real tradeweighted exchange rate of the euro had not appreciated so much (17 percent) since (the US dollar's peak in) February 2002.
Yes, criticism of China in Japan would probably be less sharp if Japan had not been struggling with weak economic growth (until very recently) and deflation and if Japan had not increasingly found its leadership within Asia being challenged by a rising China. True, Japan also has been engaging in largescale, protracted, one-way exchange market intervention to keep its currency (the yen) from rising; indeed, Japan's intervention in the first quarter of 2004 was just about as large as China's intervention for all of last year.
And yes, in emerging Asia where public criticism of China's exchange rate policies has been milder than elsewhere, concerns would be lower if some of these countries had a clearer picture of how to respond to the broader competitive challenge raised not only by China's low labor costs but also by the skill upgrading of China's exports.
