Econintersect: U.S. lawmakers have repeatedly called for a more rapid appreciation of the Chinese renminbi (Rmb) as a something needed to improve the balance of trade and help strengthen weak economic growth in the U.S. (Reuters) However, the IMF (International Monetary Fund) has stated that a significant 20% appreciation in the Rmb would have a small effect on the U.S. current account deficit (trade balance). Even if coupled with other reforms the effect would be very small on U.S. GDP as well, according to a report in the Financial Times.The IMF repeated their long standing position that the Rmb should float more flexibly than it has in recent years. China has maintained close control over the exchange rate with the U.S. dollar and this has led to much political posturing in the rest of the world.
From the Financial Times:
In its annual report on the Chinese economy, the IMF said a 20 per cent trade-weighted appreciation in the renminbi – a level similar to that demanded by many American lawmakers – would increase growth in the US economy by between 0.05 and 0.07 percentage points.
The fund said that even with a package of other reforms including liberalisation of the financial sector and encouragement of household consumption and imports, the shift in the currency would increase US growth by less than 0.15 percentage points and improve the US current account deficit by between 0.02 and 0.25 percentage points.
The fund reiterated its support for a more flexible renminbi, but said that it needed to be part of a package of reforms to increase Chinese growth and contribute, however modestly, to rebalancing the global economy.
“Appreciation is a necessary but not a sufficient condition,” said Rishi Goyal, an IMF official who helped prepare the report. “Appreciation needs to be tied to other measures”.
Sources: Financial Times and Reuters
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