News on the appreciation of RMB

Nobel laureate details negative impacts of RMB

appreciation(06/03/05)

Nobel Prize Laureate Robert A. Mundell said in Hong Kong on June 3 that China should maintain its current exchange rate otherwise it would trigger 12 negative impacts on Chinese economy and neighboring countries.

Speaking at a lecture here, Mundell, 1999 Nobel Laureate in Economic Science, also know as "Father of Euro," said that a possible move to appreciate or float RMB would delay the convertibility of the Chinese currency, cut down on the inflow of foreign direct investment, crop in economic growth greatly, aggravate non-performing loans (NPLs) phenomena in banks, hurt the profitability of Chinese enterprises, increase unemployment rate, add more deflation distress in rural sectors and reward speculators.

He added that the appreciation of RMB would weaken the currency's role in Asia, affect China's capability of honoring the commitment it made upon its entry into the World Trade Organization. He argued that the neighboring countries will not benefit from the appreciation of RMB. On the contrary, it could destabilize Southeast Asian countries, worsen these countries' fiscal situation, and will even trigger an economic recession of the East Asia.

He noted that the RMB appreciation issue is quite controversial, even in the academic circle.

According to him, the controversy suggest there is no solid model for the currency to appreciate, and to what extend.

"None of the protagonists have produced their model and subject to rigorous test," he said. "It is not a monetary issue and cannot be addressed by monetary measures," he added.

The one-day forum, organized by Sun Hung Kai Properties and the Chinese University of Hong Kong, drew the participation of Edward Prescott, 2004 Nobel Laureate in Economic Sciences, James A. Mirrlees, 1996 Nobel laureate in Economic Sciences and other noted overseas economists.

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