US does not want Chinese currency to devalue, it wants China to re-value.
MCLEAN, VA, US: I am surprised that Yousuf Nazar in his article “Barking up the wrong tree” (October 25) does not realise that the US does not want Chinese currency to devalue, it wants China to re-value. China’s currency is, according to one estimate by the Peterson Institute in Washington, under-valued by around 20–30 per cent. I think the IMF’s calculation produces the same degree of under-valuation.
Therefore, China does not have a strong currency. China deliberately has a weak currency which gives it an unfair competitive advantage and leads to large global imbalances.
Other countries with large balance of payments surpluses also need to re-value their currencies. This would help to correct global imbalances and make global growth more even and self-sustaining.
China and other surplus countries need to boost domestic demand and slow down the torrid pace of exports.
The US treasury secretary in the recently-concluded G-20 meeting suggested that there should be some sort of a cap on surplus countries — for instance, a surplus not to exceed four per cent of GDP. While that side-steps the currency issue, it is unlikely to work.
The IMF should monitor exchange rate developments and specifically the spill-over effects on other countries. That is what it was set up to do in the first place. It needs to get back to its original mandate.
Meekal Ahmed
Published in The Express Tribune, October 27th, 2010.
