RMB not tipping US-China balance sheets

Edited and Translated by People's Daily Online

In the past decade, Western politicians and scholars have been groundlessly criticizing China on various occasions for undervaluing the RMB, which they believe has led to the United States' balance of payments deficit and high unemployment. As the 2012 U.S. presidential election is drawing near, the RMB exchange rate issue may be further politicized.

The exchange rate is only one of many factors affecting a country's balance of payments. It is not even a main factor in some cases. Since the beginning of the 21st century, the U.S. trade and current-account deficits have been growing steadily and exceeded 4 percent of its gross domestic product in most years. The U.S. dollar depreciated nearly 33 percent against other major currencies from 2002 to 2007, while its trade deficit increased from 361.8 billion U.S. dollars in 2001 to 696.7 billion U.S. dollars in 2007.

Meanwhile, the ratio of its trade deficit in GDP rose from 3.5 percent to nearly 5 percent. The country's current-account deficit has witnessed a similar development trend. Even the sharp depreciation of the U.S. dollar did not help reduce the U.S. balance of payments deficit. It would be ridiculous to expect a decline in the deficit through the RMB appreciation.

Another fact is that the change of United States' international balance of payments was not correlated with that of the U.S. dollar exchange rate as theoretically expected in six of the 11 years from 2000 to 2011. Of the six years, there were four years when the U.S. dollar depreciated, but America's international balance of payments worsened and two years when the U.S. dollar appreciated but the country's international balance of payments increased.