WORKING PAPER 07-5

A (Lack of) Progress Report on China's Exchange Rate Policies

by Morris Goldstein, Peterson Institute for International Economics

June 2007

Morris Goldstein China has failed to deal decisively with its rising external imbalance and the growing undervaluation of its currency, and it has not honored its obligations on exchange rate policies as a member of the International Monetary Fund (IMF). The United States and the IMF have hardly covered themselves with glory either on solving these problems. The priority for China should be to deliver right away a meaningful "down payment" of a 10 to 15 appreciation of the renminbi from its current level. Bolder exchange rate action should be accompanied by an expansion and redirection of government expenditure toward weaknesses in China's social safety net—that is, toward health, education, and pensions—and thus reduce the incentives for high precautionary saving. For its part, the United States needs to clarify and strengthen its message on what it wants China to do on exchange rate policy while simultaneously demonstrating its willingness to make a larger contribution toward reducing global payments imbalances. The US Treasury should make clear to China that if it fails to drastically reduce its large-scale, one-way intervention in the exchange market, it will be labeled a "currency manipulator" in the Treasury's June 2007 report on exchange rates to the US Congress. Finally, the IMF should return to its roots by taking up in earnest the role that its founders set out for it as the global umpire for exchange rate policies. The multilateral consultation process, launched with much fanfare by IMF management in April 2006, is no substitute for that umpire role.

View full document [pdf]


RELATED LINKS

Policy Brief 13-29: Estimates of Fundamental Equilibrium Exchange Rates, November 2013 November 2013

Policy Brief 13-28: Stabilizing Properties of Flexible Exchange Rates: Evidence from the Global Financial Crisis November 2013

Op-ed: Unconventional Monetary Policy: Don't Shoot the Messenger November 14, 2013

Op-ed: Misconceptions About Fed's Bond Buying September 2, 2013

Working Paper 13-2: The Elephant Hiding in the Room: Currency Intervention and Trade Imbalances March 2013

Policy Brief 12-25: Currency Manipulation, the US Economy, and the Global Economic Order December 2012

Working Paper 12-19: The Renminbi Bloc Is Here: Asia Down, Rest of the World to Go? October 2012
Revised August 2013

Policy Brief 12-19: Combating Widespread Currency Manipulation July 2012

Policy Brief 12-7: Projecting China's Current Account Surplus April 2012

Working Paper 12-4: Spillover Effects of Exchange Rates: A Study of the Renminbi March 2012

Book: Flexible Exchange Rates for a Stable World Economy October 2011

Op-ed: Taxing China's Assets: How to Increase US Employment Without Launching a Trade War April 25, 2011

Op-ed: Why the World Needs Three Global Currencies February 15, 2011

Policy Brief 10-24: The Central Banker's Case for Doing More October 2010

Policy Brief 10-26: Currency Wars? November 2010

Testimony: Correcting the Chinese Exchange Rate September 15, 2010

Op-ed: New Imbalances Will Threaten Global Recovery June 10, 2010

Book: The Future of China's Exchange Rate Policy July 2009

Book: Debating China's Exchange Rate Policy April 2008

Article: The Dollar and the Deficits: How Washington Can Prevent the Next Crisis November 2009

Policy Brief 09-21: The Future of the Dollar September 2009

Policy Brief 07-4: Global Imbalances: Time for Action March 2007

Working Paper 11-14: Renminbi Rules: The Conditional Imminence of the Reserve Currency Transition September 2011

Peterson Perspective: Legislation to Sanction China: Will It Work? October 7, 2011

Book: China's Rise: Challenges and Opportunities (hardcover) September 2008



© 2014 Peter G. Peterson Institute for International Economics. 1750 Massachusetts Avenue, NW.
Washington, DC 20036. Tel: 202-328-9000 Fax: 202-659-3225 / 202-328-5432
Site development and hosting by Digital Division