IMF economist: RMB appreciation no cure-all
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An appreciation of the Chinese yuan will help the U.S. economic growth but it won't solve the problems in its own economy, the International Monetary Fund (IMF) chief economist said Monday.
Olivier Blanchard made the remarks in an exclusive interview with Xinhua.
An appreciation by 20 percent of the yuan, fully known as Renminbi or RMB, along with a similar currency appreciation by other emerging Asian economic entities may lead to an increase of about 1 percent of the U.S. GDP, Blanchard said, basing the prediction on an IMF model.
"This would be good news for U.S. growth. But this is clearly not enough, by itself to sustain growth in the United States," the IMF chief economist added.
The RMB exchange rate with the U.S. dollar has long been a target of criticism in the United States and some European countries. Some politicians in these countries believe that China's undervalued currency cost their countries jobs, thus hurting their economies.
But Blanchard took a different view.
In another recent interview, he said that the appreciation of the RMB is not a panacea for the United States nor for the rest of the world. "It's very important not to bash China over the RMB," he said.
On Monday, Blanchard again stressed that a discussion on China's macro-economic policy should start with the saving rate and not with the exchange rate.
"There is wide agreement that the current Chinese saving rate is too high, that it reflects insufficient social insurance for households, governance problems in firms, and low financial access," he said.
Blanchard, an economist from France, said that it is "very desirable" for China to take measures in the fields of health care, the retirement system, distribution of profits by companies or financial institutions. He added that the Chinese government has already begun taking measures along these lines.
The IMF chief economist believes that with these measures already taking effect and the increase of China's domestic demand, China will "need to re-direct resources towards this increased domestic demand and to avoid over-heating."
"The right tool to do that is an appreciation of the RMB," he explained. "This is the context in which we should think about the RMB appreciation as we look to sustained growth in China over the medium run."
Blanchard said that while China strives to reduce its saving rate, what the United States should do is to reduce its budget deficit.
"At this stage of recovery, the U.S. government has to balance deficit reduction against the need to sustain U.S. growth. The U.S. government will be reluctant to reduce its fiscal stimulus until private demand is strong enough to sustain growth," he said.
He added that an increase in U.S. exports would make it easier for the U.S. government to reduce the stimulus. "In this sense, what happens in the U.S. and China is interlinked," Blanchard said.
The U.S. government recently proposed a budget of 3.83 trillion dollars for the fiscal year 2011 with a forecast deficit of 1.56 trillion dollars in 2010, another new record of budget deficit. In 2009, the United States saw a record deficit of 1.41 trillion dollars.
As for the world economic trend, Blanchard said that the recession is ending and that the recovery is proceeding with emerging Asia countries recovering at a much faster pace than advanced countries elsewhere.
"The main challenge is to make sure that growth is sustained in advanced countries," he said.
"If it is not, then the rest of the world will suffer as well," he warned.
