Tuesday, May 22, 2007

No Quick Fix for Yuan

Matt Slaughter at Dartmouth has an excellent oped in WSJ, here's the bottom line:

"Put it this way: In a counter-factual world where over the past decade China allowed the yuan to float against the dollar, the U.S. would still have run a large and growing trade deficit with China. The real economic forces of comparative advantage that drive trade flows operate regardless of which nominal prices central banks choose to fix."

More here.

3 comments:

David said...
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David said...

Mr Slaughter makes a good point in his article about the effects of China revaluing the Yuan - i.e. there would still be a large trade defecit with the US. However I think it's interesting to look at the question of the Yuan's valuation from a different point of view - what should be the motivations of the Chinese government be regarding a devaluation? I think it is clearly in the best interests of the Chinese economy and people to keep the Yuan weaker, to stimulate exports - and therefore we should expect no major changes in the exchange rate in the near future on that basis. What do others think?

I've written a more in depth article on this topic in my blog -


Why the Chinese Will Not Revalue the Yuan

Gary said...

The debate is motivated more by politics than the economics invovled, I think.

Thanks for your comment though David.