Nobel laureates warn against China currency revaluation

by: Ezra Marbach

Nobel Prize winners Joseph Stiglitz and Robert Mundell agree that a China currency appreciation would not be helpful to either China or the US. Here are the key points:

The United States blames foreign countries for its trade deficits:

  • In the 1980s, the US blamed Japan for its massive trade deficit.
  • Today, China is blamed.

America's real problem:

  • The root of America's economic problem results from the imbalance between savings and investment.

Will a China currency appreciation fix the imbalance?

  • According to both economists, the answer is NO.
  • According to Stiglitz: "A 3% change on the foreign exchange rate does not have a significant effect" on the US trade deficit with China".
  • Factories are not going to move production to the United States because of the change.
  • The problems of outsourcing, manufacturing, and China's global advantage would not be affected by a moderate change in the foreign exchange rate.

What would a China currency appreciation do to the Chinese economy?

  • It would have an adverse effect on Chinese farmers.
  • It would also negatively effect China's bid to narrow the rural-urban income gap.
  • It could undo some of the progress China has made in reducing poverty in rural areas.

According to Stiglitz, China would benefit in one way from a currency appreciation:

  • "A revaluation of the Yuan would get political pressure off the back of China for a couple of months".