Discussions about the renminbi exchange rate were not unexpected
at the International Monetary Fund (IMF) and World Bank semi-annual
meetings held during the weekend in Washington.
But the insistence - rising, in some cases - of those advocating
"a more flexible exchange rate" for the Chinese currency is
disturbing.
Efforts made by some to strengthen the IMF's role in monitoring
member countries' exchange rate policies are even more
disturbing.
While China firmly believes that radical steps in increasing the
yuan's flexibility would hurt its economy, US financial officials
and IMF economists continue to contend that a more flexible
renminbi - for the moment, a euphemism for appreciation - will be
in China's interests.
China has enumerated its reasons for a cautious approach in
dealing with the foreign exchange rate - unfinished banking reform,
overcapacity in the industrial sector and enterprises generally
inexperienced in dealing with big currency fluctuations, among
others.
Drastic moves regarding the flexibility of the renminbi could
cause deflation and even a financial crisis, China argues.
None of the flexibility proponents have provided convincing
counter-arguments. Instead, they have been using classic economic
dogma to support their idea and act as if they know better than
China itself about what the country should do.
The US advice for renminbi flexibility is largely a result of
political maneuvering; it is a pity that some IMF economists say
they share the American view.
It is said that the IMF has always been heavy influenced by the
US, its biggest shareholder; we wish it were not.
The IMF has an important role in safeguarding global economic
stability and it did achieve much. But it has also had its share of
debacles in the past decades in attempts to salvage economies
plagued by financial crises.
The institution's wrong prescription for those countries should
serve as a reminder for the IMF when it brushes aside what its
members think about their own interests.
(China Daily April 17, 2007)