Yuan revaluation expected
Published: Feb. 5, 2010 at 12:08 AM
WASHINGTON, Feb. 4 (UPI) -- China's plans to rely less on exports and more on domestic demand could lead to an appreciation of its currency sought by the United States, sources said.
As the United States takes up the issue of the undervalued yuan, which makes Chinese exports cheaper and imports more expensive, a U.S. Treasury official told The Washington Post the global financial crisis already has convinced China it needs to spur domestic demand.
Letting the yuan appreciate against the U.S. dollar would accomplish that goal as it would make imports cheaper for the Chinese, while making the country less dependent on exports.
Separately, U.S. Treasury Secretary Timothy Geithner told the Senate Budget Committee Thursday China will let the yuan appreciate because "I think they recognize it's important to them, in their interest as well."
Experts say the yuan is generally undervalued by 25 percent to 40 percent against the dollar, which has helped the Chinese trade surplus soar.
C. Fred Bergsten, the director of the Peterson Institute for International Economics, said he believed China will revalue the yuan, adding such a move would also cause other currencies in Singapore, Hong Kong, Taiwan and Malaysia to do the same as they are linked to the Chinese currency.
He said China will likely go for a quick revaluation of up to 10 percent this year without which more cash would flow into China in anticipation of a revaluation, thereby creating an asset bubble.
A quick yuan appreciation would lead to a big jump in U.S. exports, creating up to 800,000 jobs and reducing the trade deficit by as much as $125 billion.
But economist Derek Scissors with the Heritage Foundation warned China may resort to other means such as lowering taxes, giving companies free land and adopting export subsidies, the Post reported.
Published: Feb. 5, 2010 at 12:08 AM
WASHINGTON, Feb. 4 (UPI) -- China's plans to rely less on exports and more on domestic demand could lead to an appreciation of its currency sought by the United States, sources said.
As the United States takes up the issue of the undervalued yuan, which makes Chinese exports cheaper and imports more expensive, a U.S. Treasury official told The Washington Post the global financial crisis already has convinced China it needs to spur domestic demand.
Letting the yuan appreciate against the U.S. dollar would accomplish that goal as it would make imports cheaper for the Chinese, while making the country less dependent on exports.
Separately, U.S. Treasury Secretary Timothy Geithner told the Senate Budget Committee Thursday China will let the yuan appreciate because "I think they recognize it's important to them, in their interest as well."
Experts say the yuan is generally undervalued by 25 percent to 40 percent against the dollar, which has helped the Chinese trade surplus soar.
C. Fred Bergsten, the director of the Peterson Institute for International Economics, said he believed China will revalue the yuan, adding such a move would also cause other currencies in Singapore, Hong Kong, Taiwan and Malaysia to do the same as they are linked to the Chinese currency.
He said China will likely go for a quick revaluation of up to 10 percent this year without which more cash would flow into China in anticipation of a revaluation, thereby creating an asset bubble.
A quick yuan appreciation would lead to a big jump in U.S. exports, creating up to 800,000 jobs and reducing the trade deficit by as much as $125 billion.
But economist Derek Scissors with the Heritage Foundation warned China may resort to other means such as lowering taxes, giving companies free land and adopting export subsidies, the Post reported.
