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China should say no to RMB appreciation
Updated: 2004-06-01 14:06

China should be determined in saying "no" to the appreciation of the Chinese currency Renminbi (RMB), said Nobel Prize laureate Robert Mundell here Sunday.

Mundell, who attended a forum on the global economy and China in the world financial system, said that as the RMB is not fully convertible, appreciation of the currency would bring about a series of crises.

These would include lower foreign investment and economic growth, bigger non-performing loans of banks, higher losses of State-owned enterprises and unemployment rates as well as more unstable factors for the Southeast Asian economies, which will affect the RMB's future influence in the region, he said.

China's financial authorities might risk losing control of the economy as speculative money could flood the banking system if the RMB would be revalued, he said.

The RMB appreciation has no benefits either for China or for other countries, he said, suggesting that the Chinese government should resolutely reject such a move.

In addition, the professor from Columbia University in the United States said the floating exchange rate mechanism is not a good solution for China. The better policy choice for the Chinese government is to fix its exchange rates based on its goals of controlling inflation.

China's pegged yuan system since 1997 has effectively controlled commodity prices better than the seven industrial powers. Any change in China's monetary policy should take into account present and future inflation factors, he said.

Currently, China maintains a unified, managed floating exchange rate regime based on supply and demand of foreign exchange in the market implemented since 1994.

As for the "Asian Dollar", the "father of the euro" said it is difficult to tell the possibility and timetable of a unitary Asian currency, which has high requirements for regional economic integration, while for the euro zone, such objective is likely to be achieved in the next 10 to 15 years.

The RMB will become a successor of the US dollar and euro, he predicted, which means China should not make the yuan a supranational currency in Asia.

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