Obama urges for yuan appreciation to blunt home pressure

09:50, March 12, 2010      

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US President Barack Obama on Thursday issued a fresh call for China to embrace a "market oriented" exchange rate for its currency, the yuan, saying such a move would help rebalance the global trade.

The US is trying to circumvent its huge domestic predicaments including rising federal deficit and waning competitiveness, said Zhiwu Chen, professor of finance at the Yale School of Management.

"The US hopes to adjust the trade imbalance between it and China by the appreciation of yuan, in order to gain public support for the Obama administration," said Chen.

With America’s unemployment at 9.7% and the mid-term elections approaching, the appeal of China-bashing is rising in the US Congress. Some US citizens believed that high unemployment rate was the result of undervalued Renminbi yuan.

"Obama has to protect employment and stabilize support from Democrat legislators."

The main reason why Obama and some US legislators' increasing pressure on yuan exchange rate was the pressure of the mid-term elections, Chen analyzed. Currently, their top agenda is to secure their seats and careers. "Yuan exchange rate issue is one of Obama's trumps facing domestic problems."

"The U.S. government wishes to eliminate trade deficit and ease its high unemployment rate by pushing yuan appreciation. That was only its wishful thinking," said Yi Xianrong, an expert with Chinese Academy of Social Sciences (CASS).

"The world needed to rebalance the mix of exports and imports driving growth in the aftermath of the financial crisis," Obama said in the speech to the Export-Import Bank in Washington.

The saying that "undervalued yuan leads to global trade imbalance" cannot stand up to close scrutiny. Zhao Qingming, a researcher with China Construction Bank stressed that imbalance of an economy's deposit and investment was the fundamental reason for trade surplus or deficit. Exchange rate has only minor influence.

In fact, yuan appreciation brings more adverse effects to western countries than positive ones. In the past tens of years, because of the yuan devaluation and export rebate policies, western countries, to a large extent, were able to enjoy low inflation, low living cost, and current standard of living, and western governments were able to reduce financial deficit and allow their people to consume excessively.

"RMB foreign exchange rate is neither the root of trade imbalance between China and the US, nor the main cause of the world economic imbalance," Yao Jian, spokesman of China's Ministry of Commerce, told a press conference.

By People's Daily Online
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