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QE3 cannot solve fundamental problem: Chinese Experts (2)

(People's Daily Online)

16:05, June 25, 2012

The economy cannot rely on morphine every day

“In the long term, QE3 cannot solve the fundamental problem,” said Zeng.

“Any monetary policies can at the most prevent further deterioration of the economic situation and grant it a reprieve like a shot in the arm. But treatment of illness cannot rely on such cardiac stimulant alone.”

Zeng said that the countries still have to carry out economic restructuring as a long-term approach. Solution of the economic problems cannot rely on morphine every day, and too frequent relief measures may not be beneficial to the economic structural adjustment.

In fact, the first two rounds of quantitative easing not only failed to solve the current systemic and structural problems of the U.S. economy as a whole, but also had a negative impact on the global economy.

Yan Xiaona, associate director of the Research office of Finance and International Economy under the IFB under the CASS, believes that the Fed’s quantitative easing policy will lead to further U.S. dollar depreciation.

Yan said that when the United States launched the quantitative easing policies, the exchange rates of U.S. dollar against almost all currencies devalued significantly in the foreign exchange market, especially against Asian currencies such as yen, won, Thai baht, and Malaysian ringgit, which had a serious impact on the economic operation of these countries. Japan, Korea, India, Russia and other countries had no choice but to intervene in currency markets to prevent the continuous sharp appreciation of local currencies.

At the same time, along with the further depreciation of the U.S. dollar, bulk commodity prices have ushered in a new round of upward pressure, resulting in a rise in global inflation expectations and intensifying the instability and uncertainty in the future trend of the global economy, Yan said.

Zhao Beiwen, researcher at Shanghai Academy of Social Sciences Institute of World Economy suggested that in case the United States launches the third round of quantitative easing policy, China must closely monitor against large-scale inflows of international “hot money;” maintain the stability of the nominal interest rate and avoid further expansion of arbitrage space; further strengthen foreign exchange reserve management and diversify foreign exchange reserve as soon as possible; and accelerate the pace of exchange rate mechanism reform of the yuan to implement the internationalization process of the yuan step by step.

Read the Chinese version at: 美国又想打“量化宽松”强心针?, Source: People's Daily Overseas Edition, Author: Luo Lan

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