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RMB is not a cure-all for US economy: IMF

(China Daily/Xinhua)
Updated: 2010-02-17 09:32

WASHINGTON: An appreciation of the Chinese yuan will help US economic growth but it will not solve problems in its own economy, the International Monetary Fund (IMF) chief economist said Monday.

A 20 percent appreciation of the yuan, formally known as renminbi or RMB, along with a similar currency appreciation by other emerging Asian economic entities may lead to an increase of about 1 percent of the US gross domestic product, Olivier Blanchard said, basing the prediction on an IMF model.

"This would be good news for US growth but this is clearly not enough by itself to sustain growth in the United States," the IMF chief economist told Xinhua News Agency.

The yuan exchange rate with the US dollar has long been a target of criticism in the US and some European countries.

But Blanchard took a different view.

In a recent interview, he said that the appreciation of the RMB is not a panacea for the United States, nor for the rest of the world.

On Monday, Blanchard again stressed that a discussion on China's macro-economic policy should start with the savin rate and not with the exchange rate.

"There is wide agreement that the current Chinese saving rate is too high, that it reflects insufficient social insurance for households, governance problems in firms and low financial access," he said.

Blanchard, an economist from France, said that it is "very desirable" for China to take measures in the fields of healthcare, the retirement system, distribution of profits by companies or financial institutions. He added that the Chinese government has already begun taking measures along these lines.

He believes that with these measures already taking effect and the increase of China's domestic demand, China will "need to redirect resources towards this increased domestic demand and to avoid over-heating".

"The right tool to do that is an appreciation of the RMB," he explained. "This is the context in which we should think about the RMB appreciation as we look to sustained growth in China over the medium run."