Yuan Needs to Keep Appreciating

By October 20, 2010Economy, Trade

In a much-anticipated speech to the Commonwealth Club in San Francisco on Monday, Treasury Secretary Timothy Geithner again put pressure on China to let its currency rise toward market levels.

The current rate of change, if continued, could result in enough appreciation to begin reducing global trade imbalances. The trend is clearly visible in the graph of the change in the dollar against the yuan (below).  This graph and the related exchange rate data can be found at nam.org/yuan.

The question, though, is how long the trend will continue.  The yuan, for example, has not been allowed to appreciate in the last three days.  China needs to allow it to appreciate on a meaningful trend.

Currency appreciation would be good not just for reducing global trade imbalances, but also for China’s domestic economy – which risks inflation and an asset bubble if it continues to amass exchange reserves and pump the equivalent amount of yuan into its domestic economy. 

China’s recognized currency imbalance is far from the only factor to consider in its economic relationship with the United States and the rest of the world. Chinese leadership here, however, stepping up to its responsibility as one of the world’s two leading economies, would do much to help assure global economic growth and the strength of the global trading system.   

 

Yuan-Dollar Exhcange Rate

Treasury has not yet posted Geithner’s remarks. News coverage…

 

 Frank Vargo is the NAM’s vice president for international economic affairs.

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