Pushing yuan could rock financial stability

• Source: Global Times
• [01:27 November 18 2009]
• Comments

As for the West, the yuan's sharp appreciation could shake the hard-earned financial stability after the collapse of Lehman Brothers. The Chinese-made merchandise exported to the West consists largely of labor-intensive necessities. Should the yuan appreciate overnight, Western countries would need to either continue importing from China or find an alternative country to import from.

Either way, Western consumers would end up paying more for their necessities, which would harm Western domestic consumption and widen the trade deficit with China.

As for China, a chain reaction would take place following a sharp acceleration in the currency exchange rate, and could cause a deeper plunge in exports, higher unemployment, and so on.

China, a crucial player in the world's economy, has just started to show signs of an economic rebound, and a negative chain reaction would undoubtedly be a punch in the gut, damaging the finan-cial stability of China, and that of the world.

The ongoing upward pressure on the yuan is a red herring to divert the world's attention from the root cause of the financial crisis – mismanagement of financial institutions. The current concerted efforts to ensure recovery and to repair the financial system could thus be undermined. The impact could be as disastrous as manipulating currency.

It is without any doubt that lots of improvement needs to be made in China's currency policy. But it is always China's own choice to accelerate or slow the yuan's appreciation.

After all, the valuation of the Chinese yuan is in essence an economic issue, one vital to the financial stability of China, and of the world.