Mundell urges to keep yuan steady

By Xin Zhiming (China Daily)
Updated: 2007-11-07 09:27

The yuan appreciation process is stable, but China should learn from Japan's experience and prevent its currency from rising too fast, Nobel laureate Robert Mundell said yesterday.

The yuan has appreciated by about 10 percent in the past two years, Mundell said during the 11th Business Week CEO Forum yesterday. "Five percent a year is the average rate."

China de-pegged the yuan from the US dollar in July 2005 and allowed the yuan's daily floating band against the US dollar to be widened gradually from 0.3 to 0.5 percent.

But Western economies have insisted the pace is too slow to substantially cut the trade deficit with China and demanded a much faster revaluation of the yuan.

Some EU officials have suggested the European Union join forces with the United States to pressure China to toe the line.

"But I don't think the US will do that," Mundell said in an exclusive interview with China Daily, the media partner of the CEO forum.

Economists have said the rising value of the yuan will not help the US trade balance in the long term, citing Japan's experience.

Although the Japanese government bowed to US pressure in the 1970s and 1980s to freely float the yen and allowed it to rise continually against the US dollar, the US trade deficit with Japan has not changed much.

Mundell said if China continues its current renminbi policy, the Chinese economy will not suffer much damage.

"The yuan appreciation is in the same direction with that of the yen, but nothing like it in terms of magnitude," he said.

If China is to continue such a rate of appreciation, it probably would not do a great deal of harm, he said.

The Western world is trying to pressure China to appreciate the yuan more rapidly, the Columbia University economics professor noted, but he warned that China should draw from Japan's experience and resist the pressure.

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