Opinion

The currency illusion

(China Daily)
Updated: 2010-10-08 14:22

The rising Western cacophony about China's currency policy is not a good omen for the fragile global recovery.

If the international community is to find a credible way out of the worst global financial and economic crisis in more than half a century, policymakers of major economies must stand firmly against any fallacy that advocates currency policy as an easy fix.

Two years after the collapse of the United States' investment bank Lehman Brothers sparked a global meltdown, it is quite disappointing that some debt-laden rich countries are still denying the reality that a fundamental overhaul of their economic and financial systems is badly needed.

Worse, by trying to portray their domestic woes as mainly a result of other countries' currency policies, some politicians in these advanced economies are hyping up "currency wars" that could get the world economy, if not into a no-win situation, nowhere near a sustainable recovery.

As the world's largest developing economy, China has done its best to lead the global recovery by rebounding quickly onto its fast growth track.

However, in spite of the country's remarkable and increasing contribution to the world economy as a major growth engine, some Western politicians are irresponsibly blaming China's currency policy - a key stabilizer for its domestic growth as well as the global recovery.

For instance, late last month, the US House of Representatives passed a bill that may pave the way for sanctions against China over its currency policy. And this week, Chinese Premier Wen Jiabao hit back at European pressure for faster revaluation of the Chinese currency.

Such international criticism reveals an astonishing lack of appreciation for China's efforts to reduce harmful fluctuations in the international financial systems that would significantly depress economic activities.

HK prepares for global yuan Related readings:  Wen urges EU to recognize China's market economy status  Wen takes detour to Germany  Wen urges Europe to put no pressure on RMB rate  Premier Wen vows to oppose trade protectionism

By maintaining a basically stable exchange rate between the yuan and the US dollar, the world's major trade and reserve currency, China has served well as a key stabilizer to cushion the global trade and financial systems against the crisis.

In the face of the global meltdown, urgency is certainly needed, but that is no excuse for stupidity, such as dismantling those pillars that still hold.

Moreover, some Western politicians are still promoting the fallacy that their countries can export their way out of the crisis, by forcing other countries to revalue their currencies. This indicates that they are far from grasping the scale of the problem, never mind fixing it.

Though the international community has so far succeeded in avoiding a global recession through coordinated and unprecedented stimulus programs, the global rebalancing is still far from over.

Loose monetary and fiscal policies in advanced economies might be a needed painkiller for the moment, but they are no replacement for the painful domestic restructuring that will ultimately decide one country's economic viability as well as the value of its currency.

Make no mistake, no country can and will build its long-term success on currency devaluation.