China Giving Ground on Currency

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"China Giving Ground on Currency"

There’s been a long running dispute about whether it will be necessary for the United States to formally threaten sanctions on China unless they revalue their currency. The answer now seems to be “no” as China is conceding the need to allow for more flexibility on exchange rates. The precise details are somewhat unclear, and the Chinese are cautioning the world not to expect rapid appreciation, so there will doubtless continue to be conflicts around this.

One thing I note here is that RMB appreciation is in part a form of tighter monetary policy in China. Which is good, China needs tighter monetary policy. And so do India and Brazil, all of which are likewise tightening. But no country is an island. Tightening in the three largest developing countries is the correct policy, but it makes looser policy in the U.S., E.U., and Japan all the more urgent. Likewise, fiscal contraction does seem to be the right policy for some European states (though not for Germany) but this again enhances the need for looser monetary policy from the European Central Bank.

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