Yuan free float won't correct trade imbalances: UNCTAD
18 March 2010
The rapidly escalating debate on the appreciation of the Chinese currency - being sought by an increasing number of governments and experts as a means to help correct global trade balance - saw a new participant jump into the fray with the United Nations Conference on Trade and Development (UNCTAD) asserting that global trade imbalances won't be resolved by a freely floating yuan and that the problem actually required multilateral responses.
In a policy brief, UNCTAD argues that the "decision to leave currencies to the vagaries of the market will not help rebalance the global economy."
''A viable long-term solution to the problem of massive trade distortions and global imbalances cannot be expected from individual central banks trying to find a unilateral solution to a multilateral problem like the exchange rate.''
The two-page policy brief, titled ''Global Monetary Chaos'', also said ''expecting that China will leave its exchange rate to the mercy of totally unreliable markets and risk a Japan-like appreciation shock ignores the importance of its domestic and external stability.''
The policy brief, reported by Xinhua, calls for a ''constant real exchange rate'' rule, under which higher inflation is automatically offset by the devaluation of the nominal exchange rate.
The rule, which would call for ''major political commitments,'' is feasible if ''the political will exists to put international trade on a rational basis,'' it said.