Regarding the fact that some Americans criticized
China's exchange rate while talking about the Sino-US trade balance issue,
economics professor Ronald McKinnon with Stanford University noted on the 14th
that it is China's excessively high savings rate that has caused trade surplus,
and the RMB exchange rate is absolutely unrelated.
McKinnon indicated that recently China's trade surplus is constantly and
habitually misunderstood as an exchange rate issue.
Nonetheless, the fact is that compared to investment, the savings rate of
China is quite high while that of the US is quite low.
Therefore, the US is short of savings. Should US people have the same savings
rate as Chinese people, their nation would likely maintain the interest rates at
a low level.
As to how to solve this problem, Prof. McKinnon contended that China should
reduce its savings and expand consumption.
At the same time, the US should raise its savings and cut down fiscal
expenditure. In this way, the trade imbalance between these two countries can be
solved. China's trade surplus will accordingly decline while trade deficit of
the US will decrease.
McKinnon does not stand for stimulating trade balance by means of adjusting
the RMB exchange rate on a large scale. He said that attempts to solve the
problem through the exchange rate will have uncertain impacts.
He added that should the RMB appreciate, we cannot know whether China's trade
surplus would decrease. However, China would undoubtedly see comparative
deflation, with its interest rates being forced to fall towards zero.
Zero interest rate will probably lead to an inflationary trap, which Japan
suffered from two decades ago. If China risks allowing a violent RMB
appreciation, its economy will undergo the consequence of turbulence, which, in
turn, will affect the economic stabilization of the US and the world.
Yuan to stand above 8 break point again
Chinese
currency stood strong again on Wednesday as the exchange rate of the yuan to the
dollar closed at 7.9996:1 in the competitive price deal, climbing to break the
"8" psychological point one month after it fell below that point.
At 9:30 Wednesday, the board at the National Foreign Exchange Center showed
that the average exchange rate of the dollar to the yuan was 1: 8.0051, dropping
22 points from Tuesday. After the opening session, the yuan kept rising
steadily.
In the competitive price deal system, the exchange rate of the yuan to the
dollar fluctuated between 7.9995-8.0050:1, while in the enquiry price deal
system, the transaction of the yuan against the dollar was between 8-8.0054:1.
Analysts say that the appreciation of the Renminbi shows the central bank's
strong intention for a tightened monetary policy. In addition, China faces much
more pressure with its huge, ever-increasing foreign exchange reserves and such
pressure will have to be relieved by raising the yuan value.
At present, China has 900 billion US dollars of foreign exchange reserves,
ranking first in the world, mostly coming from the country's trade surplus,
which has been growing steadily. Some financial experts predict that China's
trade surplus this year will exceed 100 billion US dollars, which means that
such pressure will continue to be felt.
It is obvious that the Renminbi's appreciation this time reflects more about
its real situation. A staff member at the transaction center predicted that
after rising above the "8" breaking point again this time, it is less likely for
the yuan to go down much deeper in the future.
