China Should not Change Exchange Rate System-Mundell

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Last updated at: (Beijing Time) Tuesday, March 25, 2003

China Should not Change Exchange Rate System-Mundell

Nobel Prize-winning economist Robert Mundell says China should not change its exchange rate policy or allow the yuan to float freely.

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Nobel Prize-winning economist Robert Mundell says China should not change its exchange rate policy or allow the yuan to float freely.

Mundell told an investment conference that China's policy of indexing the yuan against the US dollar in recent years had resulted in greater price stability than with countries that have adopted inflation-targeting exchange rate policies.

The economist says China's policy of targeting the dollar makes the yuan an anchor and gives policy-makers a rudder for determining the best policy mix.

Mundell is quoted as saying that as long as the dollar is stable in terms of US price levels, China should maintain the existing policy.

Mundell says letting the yuan float freely could result in deflation, delays in convertibility, increases in unemployment and may slow down China's export growth and increase the state-owned banks burden on non-performing loans.

At the same conference, International Monetary Fund chief economist Kenneth Rogoff said he believes China might make its exchange rate system more flexible over time due to its increasing trade and financial linkages with the rest of the world.

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