Currency Reform

RMB issue is a US smokescreen for the G20

By Huang Shuo (chinadaily.com.cn)
Updated: 2010-11-09 10:57

The G20 summit will be held in Seoul in the Republic of Korea from Nov 11 to 12. The gathering of the world's most powerful leaders attracts international attention as a platform for countries to play national interest games instead of addressing the current real hot topics. Developed and emerging countries have their own plans and goals which they expect to be implemented and achieved at this platform of the international community.

The rise of Asia is reflected by the fact the meeting is organized by an Asian country for the first time - the Republic of Korea. The new orientation of development in the world has moved to the East from the West, which is a good and reasonable explanation for America's change in global strategy after President Obama took office early in 2009.

Hence, the issues likely to be discussed at the summit will concentrate on the currency war generally caused by trade deficits and import and export volumes. The issue is likely to be linked to domestic employment rate key indicators for evaluating the governance of authorities and posing gains and losses of supporters for the government.

The foreign exchange rate has been acknowledged by most nations' importers as an effective tool and protection measure for profits in the era of free trade, a consensus agreed to by most countries around the world. Whether the country undervalues its currency or not has become a global issue of concern to other relevant counterparts in trade talks.

An artificial setting of a numerical target cannot but remind us of the days of the planned economy, and we believe that a discussion about a current account target misses the whole point of the G20 summit in Seoul, as expressed by Cui Tiankai, China's vice-foreign minister, on Nov 5. China and America's currency exchange rate accounts for most of the disputes between both sides. The voice of China offers its sticky stance for backing up free trade and calling for changes in US attitudes on the renminbi issue. Its own trade structure defects, not the RMB issue, is the main reason for US trade losses with China.

Some scholars in China estimate that there are few possibilities to reach agreement on the RMB exchange rate at the G20 Seoul summit, which only the US blames for its trade deficits. And de-appreciation of major currencies in the world will emerge as a new phenomenon in global market, so the continued weakness of the US dollar originating from the expectation of quantitative easing policy likely will continue.

Chinese Vice Minister of Finance Zhu Guangyao said on Nov 8 that the first round of the US quantitative easing policy in 2009 matched the rebound due to lack of liquidity in the world's economy, but added that the second rounds of treasury bond buyouts to pour cashes into the financial system probably triggered turbulence in the context of recovering prosperity. Meanwhile, a second round of quantitative easing (QE2) by the US Federal Reserve has been resulting in concerns that this step is solely benefiting America and sacrificing stable economic growth outside the US.

Rare earth is another topic of great importance. China is the country that owns the largest reserves of rare earth in the world. China, which produces 95 percent of the world's supplies, has reduced 2010 production levels and slashed export quotas by 72 percent for the second half to 7,976 tons, according to data from China's Ministry of Commerce. China's export quota on rare earth has attracted concerns from Japan, the US and European Union. White House Spokesman Robert Gibbs said at recent press conference that the US government might raise the rare earth issue at the upcoming G20 meeting in Seoul.

A common subject for discussion should be the global economic recovery. Boosting economic growth and promoting employment are affiliated to the recovery for major economies to confront jointly in the wake of the 2008 international financial crisis.

The author can be reached at larryhuangshuo@gmail.com.