The Impact of Regionalism and the Role of the G20
Edited by Jehoon Park, T. J. Pempel and Geng Xiao
Yoonbai Kim and Gil Kim 4.1 INTRODUCTION The value of China’s currency, the renminbi (RMB), has become a contentious issue. Many argue that the currency is undervalued and has been the main source for the country’s large current account surpluses especially with the United States (US). There has been mounting external pressure on China to allow the RMB to appreciate against the US dollar. A number of economists also argue that the exchange rate regime in China should change to market-based floating from heavy intervention in the foreign exchange market. In this chapter, we review some important issues related to the RMB. China has so far been resisting the pressure, permitting only gradual and small changes in its exchange rate policy. Apparently, the main concern for China seems to be that currency appreciation would have detrimental effects on its crucial export sector and create a host of economic problems, including worsening the unemployment problem in the rural sector and reducing economic growth. The Japanese experience of prolonged appreciation and decades-long recession has often been invoked as a reason for the resistance. The heated contention between the United States and China has pushed the world economy into a situation of competitive devaluations or ‘currency wars’ among many developed and emerging market economies. In this chapter, we briefly review two among the most contentious issues regarding the RMB. One is whether China should move to a float or at least an exchange rate regime with greater flexibility. The other is whether and...
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