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Nobel Price Laureate Robert A. Mundell, also known as the father of the Euro, reaffirmed Monday his position that China should maintain its currency exchange policy despite pressure from Western countries.
Maintaining China's currency stable is important not only to China, but also to other parts of the world, Professor Mundell told the Nobel Laureates Beijing Forum 2005.
The three-day forum, which concludes Wednesday, drew the participation of Edward Prescott, John F. Nash, Robert W. Fogel, James A. Mirrlees, Vermon L. Smith and Clive W. J. Granger, and other noted overseas economists.
A possible move to appreciate or float the Chinese currency would bring disastrous consequences to China, including delaying the convertibility of the Chinese currency, or the Chinese yuan, cutting down on the inflow of foreign direct investment, slowing down its economic growth, worsening unemployment and the fiscal situation, and destabilizing Southeast Asian countries, said Mundell.
It would also affect China's capability of honoring the commitment it made upon its entry into the World Trade Organization and be bad for Hong Kong, he said.
He said China possesses increasing comparative advantages in the manufacturing sector, which require the redistribution of world production, resulting in what he described as China's competitive shock to the world economy.
"It is not a monetary issue and cannot be addressed by monetary measures," he said.
He said the claim made by a Japanese deputy finance minister three years ago that China exports deflation to the world is groundless.
He quoted Alan Greenspan, chairman of the US Federal Reserve, as saying earlier this month that the reevaluation of Chinese currency will not improve the US trade deficit.
Mundell also said it did not go along with the usual practice of the International Monetary Fund (IMF) to apply pressure to appreciate a currency, as the yuan is currently not convertible.
"Never before, in the whole history of the IMF, has a country with inconvertible currency appreciated its currency," he said.
Mundell, who was awarded the Nobel Prize in economics in 1999, said a fixed Chinese currency exchange rate in the past decade brought China rapid economic growth and stable price levels.
He dismissed the claim that his position on the Chinese currency rate has been influenced by his love of China. He has been given a permanent residence permit in Beijing.
Mundell said he has advocated a fixed exchange rate for the Chinese currency against the US dollar since 1994 as long as the US dollar is stable, although the appreciation of the US dollar in1997 caused deflation in China.
He lashed out at the bid by some countries to pressure China on its currency exchange issue, saying some Asian and European countries had called on China to devalue its currency after the Asian Financial Crisis in late 1990s, which China rejected. Subsequently, facts proved it right.
On measures needed to maintain a stable currency, he urged China to cut down its huge foreign exchange reserve, which has exceeded 600 billion US dollars, by encouraging Chinese firms to invest abroad and gradually raising the wages of its workers.
China should also explain its monetary policies to the international community, he said.
The issue of the Chinese currency exchange rate has attracted worldwide attention recently as some countries, including the United States and members of the European Union, have been claiming that the yuan is too low, giving Chinese exporters a trade advantage.
Last week, the People's Bank of China, or the central bank, reiterated in a report that China will keep its currency "basically stable at a rational equilibrium" while improving the regime that determines the yuan's exchange rate.
The report acknowledged that China's monetary policy is being challenged severely by the trade surplus and rapid growth of foreign currency reserves in the first quarter of the year.
As China still implements foreign exchange controls, a trade surplus will usually lead to the amassment of official foreign currency reserves, which added as much as 49.4 billion US dollars in the first three months, bringing the total to 659.1 billion dollars.
The central bank report promised to further deepen the reform on foreign exchange management and promote the balance of international payments.
The central bank already put forward a series of policies aiming to facilitate the use of foreign currencies by domestic enterprises and individuals in the past year.
(Xinhua News Agency May 31, 2005)
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