Beijing (AsiaNews/Agencies) – The United States is pursuing its current monetary policy, aware that it might have inflationary consequences for other countries. China in turn will only let the yuan rise gradually, at its own discretion. Thus, the world’s two largest economies continue their tug-of-war.
Speaking on the CBS programme 60 Minutes aired on Sunday, Federal Reserve Chairman Ben Bernanke criticised China for keeping the yuan low. “China is growing very quickly,” he said. “They're risking inflation by importing US monetary policy. And that's a problem for them.”
The Fed's decision to buy bonds to keep rates low and support a fragile recovery has raised eyebrows overseas, especially in Asia, because it favours asset bubbles and worldwide inflation.
Many officials in emerging markets have accused the US central bank of actively trying to push down the dollar, saying the move risked stoking bubbles in unexpected places.
Ma Delun, a deputy governor of the People's Bank of China, last month said the Fed's programme “may add risks to the global economic imbalance, put pressure on emerging markets to adjust their international balance of payments and could also stir the formation of asset bubbles”.
In his interview with CBS, Ben Bernanke shot back. “Keeping the Chinese currency too low is bad for the American economy,” he explained, “because it hurts our trade. It's bad for other emerging market economies” as well.
Some analysts argue that Beijing undervalues its currency by 15 per cent to 40 per cent. At the same time, China’s status as an economic power requires a convertible yuan. However, the government’s policy is to hold it below its real value in order to boost exports even at the expense of other economies.
Back in 1993, Beijing had announced its intention to make the yuan convertible gradually, at its own discretion. Recently, Xiao Gang, chairman of the Bank of China, wrote in the China Daily, "The non-convertibility of the yuan is a major hurdle for China to grow into a real financial power”. However, he agreed that his country would make the yuan convertible on capital accounts in the next few years only in a gradual manner.
For years, the United States and other Western powers have called on China to make the yuan convertible. Many view the US Federal Reserve’s policy as a way to force China to revalue its currency.
In October, China’s inflation rate stood at 4.4 per cent, a 25-month high, with the highest increases in the price of basic items like food. For this reason, decision-makers in Beijing want to avoid more inflation, fearing popular unrest.
One way of stopping inflation from the United States would be to boost the value of the yuan. However, Chinese authorities have indicated that they would not slow economic growth to rein in inflation. Instead, they have adopted a series of steps to hold down prices of basic items as they did months ago for rising real estate.
For China, economic growth is also a way to maintain employment levels. Lower exports because of a higher yuan would boost the ranks of the jobless by several millions.