Wall Street Journal: RMB not undervalued

The US Wall Street Journal published an article Monday pointing out that RMB's exchange rate against the US dollar has not been undervalued and the America's trade deficit would not be reduced because of the adjustment of RMB exchange rate.

The article says that in the 1980s and early 1990s America blamed its increasing trade deficit on Japan and went out of its way to punish Japan. America said either Japan appreciated the yen or it would face sanction. Japan caved in eventually. However, America's trade deficit and Japan's trade surplus continued to grow. Meanwhile it created a monster in Japan - deflation and economic depression. Now America's trade deficit almost doubled over the last five years. This time China became the "defendant". To deal with China Washington again picked up the trick it used to criticize Japan, which has been shelved for years.

Whether or not China has manipulated the exchange rate is impossible to tell, said the article, because "manipulating currency" is not a workable concept for economic analysts. The US Treasury Department admitted this in March in a report attempting to clarify the legal definition of "manipulating currency". The article also believes that the RMB's exchange rate against the US dollar has not been undervalued. A recent IMF report also says it is hard to find convincing evidence that the RMB has been considerably undervalued.

The article says even if the RMB exchange rate were adjusted America's trade deficit would not thereby be reduced. America's import from overseas will only shift to other countries. If the RMB is forced to appreciate a direct result would probably be economic depression and deflation, which might constitute a threat to China even bigger than trade sanctions. If the RMB appreciate 25 percent then the deflation rate might at least be 15 percent.

It says to require the RMB to appreciate will infringe on China's sovereignty. According to the IMF agreement member states can freely choose their exchange rate system.

It points out that now it is time for America to stop making hasty conclusion under false assumption. To oppose a country with the most population in the world and to do so by illegitimate means is not only unwise but also dangerous.

By People's Daily Online