IMF chief economist: Appreciation of RMB no cure-all for US economy

• Source: Xinhua
• [10:25 February 16 2010]
• Comments

An appreciation of the Chinese yuan will help the US economic growth but it won't solve the problems in its own economy, the International Monetary Fund (IMF) chief economist said Monday.

Olivier Blanchard made the remarks in an exclusive interview with Xinhua.

An appreciation by 20 percent of the yuan, fully known as Renminbi or RMB, along with a similar currency appreciation by other emerging Asian economic entities may lead to an increase of about 1 percent of the US GDP, Blanchard said, basing the prediction on an IMF model.

"This would be good news for US growth. But this is clearly not enough, by itself to sustain growth in the United States," the IMF chief economist added.

The RMB exchange rate with the US dollar has long been a target of criticism in the United States and some European countries. Some politicians in these countries believe that China's undervalued currency cost their countries jobs, thus hurting their economies.

But Blanchard took a different view.

In another recent interview, he said that the appreciation of the RMB is not a panacea for the United States nor for the rest of the world. "It's very important not to bash China over the RMB," he said.

On Monday, Blanchard again stressed that a discussion on China's macro-economic policy should start with the saving rate and not with the exchange rate.

"There is wide agreement that the current Chinese saving rate is too high, that it reflects insufficient social insurance for households, governance problems in firms, and low financial access," he said.

Blanchard, an economist from France, said that it is "very desirable" for China to take measures in the fields of health care, the retirement system, distribution of profits by companies or financial institutions. He added that the Chinese government has already begun taking measures along these lines.

The IMF chief economist believes that with these measures already taking effect and the increase of China's domestic demand, China will "need to re-direct resources towards this increased domestic demand and to avoid over-heating."

"The right tool to do that is an appreciation of the RMB," he explained. "This is the context in which we should think about the RMB appreciation as we look to sustained growth in China over the medium run."

Blanchard said that while China strives to reduce its saving rate, what the United States should do is to reduce its budget deficit.