Coming Visit May Signal Easing by China on Currency

Source: NY Times

It is the number that lurks behind much of modern economic life, a figure that helps shape the fortunes of nations and the price of nearly everything.

The number hovers around 6.827. It is the nearly fixed rate of exchange between China’s currency, the renminbi, and the United States dollar. Members of Congress say it is proof Beijing manipulates its currency to keep its exports cheap — at the expense of American exports and jobs.

They want the government to label China a “currency manipulator,” which would allow Washington to retaliate against China economically. But the announcement by Chinese authorities on Thursday that President Hu Jintao will be visiting Washington in two weeks is being seen as the beginning of a possible easing of the friction over the renminbi.

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Much is at stake, both for China and the United States. If Beijing bowed to American demands and let its currency appreciate by, say, 10 percent, the resulting squeeze on exports would shave about 0.86 percentage point off China’s annual growth rate, according to a paper by Dani Rodrik, a professor of international political economy at the Harvard Kennedy School of Government. A 25 percent increase in the value of the renminbi would trim Chinese growth by 2.15 percentage points.


Read more: http://www.nytimes.com/2010/04/02/business/global/02yuan.html

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It is about time. It is amazing the degree to which the fixed exchange rate operates as a Chinese domestic subsidy. Also, by artificially inflating demand for Chinese exports, is the U.S. manufacturing industry harmed?