CCTV.com - CNTV English - CCTV News


Homepage > News > Biz >

Stable yuan to help internationalization moves: Stanford professor

09-03-2010 09:49 BJT

CHANGCHUN - A more stable, not flexible, yuan would help China's effort to internationalize the currency while foreign pressure on faster yuan appreciation is "counter-productive", Ronald McKinnon, professor of international economics at Stanford University, said on Thursday.

The Chinese currency should be included in the special drawing rights (SDR) basket of the International Monetary Fund next year as the country's economic clout rises, said Nobel laureate Robert Mundell.

China should continue to encourage internationalization of the yuan, McKinnon said in a paper presented at the Changchun High Level International Financial Conference.

"With a stable yuan/dollar rate, foreigners would be more willing to borrow in yuan from Chinese banks and even be willing to issue yuan-denominated bonds in Shanghai."

"But they would not do that if they think the yuan is going to appreciate," McKinnon told China Daily on the sidelines of the meeting. "It'll be crazy for them if they borrow yuan before it jumps up" because they will pay back more than they borrow.

He also said the yuan's exchange rate is not the cause of the Sino-US trade gap, a reason often used by US politicians and media outlets for criticizing China.

McKinnon called that an "economic fallacy". "The Americans think that as the yuan rises, the American trade deficit will diminish; but that's wrong."

If the yuan were to appreciate sharply against the dollar, potential investors would see China as a more expensive place to invest, he said.

"This might set off a minor investment boom in the US and a major jump in China's huge investment sector," he said. "Overall, investment-led expenditure in China would fall, the economy would contract, and Chinese imports could fall", leading to expanding trade surplus.

Nobel Laureate Robert Mundell, who was also present at the Changchun meeting, said that given China's increasingly important role in the world economy, the yuan should be included in the basket of SDR of the International Monetary Fund.

"China should be added to the SDR at the penitential review, which will be next year. It should be a five-currency basket with China having the same weightage as the pound," said Mundell, who is also a professor of economics at the University of Columbia.

As the second step, in the next round of review in 2016, the IMF should consider increasing China's share close to its weight in the world economy, he said.

The IMF is going to review the currency composition of the SDR next year, a move conducted every five years to ensure it reflects the relative importance of major currencies in the world's trading and financial system.

The value of the SDR, a regime created by the IMF in 1969 to supplement its member countries' official reserves, is currently based on a basket of four key international currencies, with the greenback weighted at 44 percent, the euro at 34 percent, the Japanese yen and pound sterling at 11 percent each.

"China should assert some leadership in the international monetary system now, because the post-crisis world is going to be different from the pre-crisis world," he said.

Mundell said the global economy might enter another secular crisis after the 2008 financial crisis. "It is not going to be a depression, but a very low growth rate periodas after this crisis, there is nothing going to generate a global boom," he said.

Editor:Xiong Qu |Source: China Daily

Hot Videos view more

The celebrations are still continuing as the victorious coach, Joachim Loew, has been honored for his achievement in his hometown of Freiburg.
Germany coach Loew honored in hometown of Freiburg

Chinese men´s national team continued its preparations for next year´s Asian Cup, as they managed a one-all draw against visitors Jordan during a football friendly in Harbin, the capital city of Northeast China´s Heilongjiang Province.
China held to 1-1 draw by Jordan

The defending world champs came into the contest with a perfect 6-and-oh record, but they would be in for a tough first half before opening things up in the second.
USA beat Slovenia 119-76 in quarter-finals

Hot Stories more

UK authorities believe killer of James Foley is a British national

Across the UK the hunt is on for James Foley’s killer, who authorities believe is a British national. As Richard Bestic reports from London, Prime Minister David Cameron cut short his summer break to lead his government’s response.

Israeli war jets renews Gaza strike as truce talks stalled

Three Palestinians were killed and 40 others wounded in the intensive Israeli war jets´ airstrikes on the Gaza city on Tuesday night, shortly before an end of a 24-hour ceasefire in the Gaza Strip,

Missouri police arrest dozens after violent night

As the protests in the town of Ferguson, Missouri turned violent with police facing ´heavy gunfire´ from some ´criminal elements´, cops fired tear gas, stun grenades and arrested 31 demonstrators on Monday night.

Picture in news more

More Video News

Choose TV Program