Pressuring yuan misguided
Updated: 2011-10-18 08:02
By Xing Susu (China Daily)
US should abandon its beggar-thy-neighbor policies and pursue cooperation to find solutions to its economic woes
Although troubled by an ailing economy and mass protests at home, US senators have once again shown their never-ending enthusiasm for attacking China's exchange rate by passing the "Currency Exchange Rate Oversight Reform Act of 2011" project plan in an attempt to pressure China into appreciating its currency.
China has repeatedly pointed out that fierce appreciation of the yuan will solve neither the US' huge trade deficit nor its high unemployment rate. Instead, it will have complicated negative effects upon the global economy, raising the prices of global industrial products, which will in turn worsen the existing inflation in many countries, including the United States, and possibly spread their political problems and social unrest to others.
In the wake of the 2008 world financial crisis, the US has resorted to dollar depreciation to cut its debts and stimulate its economy. By introducing two rounds of quantitative easing (QE) and other beggar-thy-neighbor policies, the US has poured large piles of banknotes into other countries, greatly increasing their risk of inflation, especially in developing nations.
Such actions have been heavily criticized by top economists such as Joseph Stiglitz for their ineffectiveness in helping the US economy and their negative impact on the global economy.
Today, one year after the US Federal Reserve Board's introduction of QE2, the US unemployment rate remains high while the global economy has become further imbalanced by the mass printing of US dollars. From northern Africa to Europe, from the Mediterranean to the Atlantic, both developing and developed countries, including the US itself, find themselves suffering from social unrest that is partly caused by dollar-stoked inflation.
From the Occupy Wall Street movement in the US to the Day of Anger in Europe, public unrest shows that in today's interdependent world, any improper policy that tries to make other countries share the burden of the US' troubles will have a chain reaction that could end in disaster.
But even more ridiculous than pressuring the yuan to appreciate is the US' insistence on politicizing economic issues. While negotiating with China on economic matters, the US has challenged Beijing with arms sales to Taiwan and other political disputes. However, its efforts are doomed to failure, because the days of superpowers are over. It is no longer a zero-sum-game. Today, things are done through cooperation.
In fact, the current problems afflicting the global economy are deeply rooted in its structure, and cannot be solved by adjusting exchange rates and printing banknotes. The US may choose to force other countries such as China to appreciate their currencies, but such behavior only passes the buck and does nothing to help the US or the global economy.
In my opinion, at a time when the US dollar and the euro - the two dominant international currencies - are fluctuating wildly, it is essential to keep the yuan at a relatively stable exchange rate so as to maintain the stability of the global financial system, where the yuan is playing an ever-more important role. By maintaining the stability of the yuan, China will not only protect its own people's interests, but also help to stabilize the international financial market, which is what a responsible power should do.
Considering the balance and general atmosphere of US politics, it is unlikely that the bill will ever end up as a piece of legislation. US senators should learn to alter their old way of thinking, not only on the current exchange rate dispute with China, but also on other issues as well.
In today's globalized world, there is no place for beggar-thy-neighbor policies such as this, and cooperating with others is the smarter choice.
I hope that US senators will realize this and make the smarter choice next time. After all, they have so many problems of their own that need to be solved.
The author is a researcher from Chinese People's Institute of Foreign Affairs.