ECB Wellink on the newswires. Comments on China’s currency dilemma
Says that China is worried that currency appreciation will lower exports. This is the rub with the mispriced Yuan. The low Yuan makes exports cheap to countries like the US and a large balance of payment disequilibrium. If it adjusts it makes its exports more expensive abroad to the US. This could lead to lower exports.
SO what do they do? They need to stimulate domestic spending that will take the place of lower exports. For the US, domestic companies need to take up the slack caused by the higher price for imports without stoking inflationary pressures.
This would make for a more balanced global but it does not come without risks. For China, the potential for lower growth and perhaps encouraging a more democratic economic environment. For the US higher inflation.
time to... (Feb 4, 2010)
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