Tuesday, November 02, 2010

G 20: putting the pressure on China won't help

The US seems to believe that a revaluation of the yuan holds the key to global imbalances. Of course, the Chinese need to revalue. But they will be more willing to do so when the see the US economy picking up smartly and continuing to generate demand for their exports. That means US has to pep up domestic demand. It's fast becoming apparent that monetary policy alone won't do the trick for the US.

Quantitative easing-II has led to funds flooding into emerging markets and triggering competitive devaluations. It hasn't done much to revive the US economy. Fiscal policy, discredited since the Greek crisis, may have to play its role. More in my ET column, G 20 accord needs US policy shift.

2 comments:

blackadder said...

Dear sir, I would be very surprised if China moves unilaterally to devaluing its currency as it weakens the fundamental model of cheap manufacturing for the export markets on which China's prosperity and employment strategy is based.

THE STORY MAKER said...

China is clearly a very powerful emerging nation and devaluation of its currency may inhibit its growth run. Hence it seems very likely that China wont comply with the notion of its currency devaluation.