Looking at China’s renminbi

Speculation about an imminent revaluation of China’s renminbi against the US dollar has reached fever pitch. An erroneous report on Wednesday on the English-language website of the People’s Daily, the Communist party newspaper, did nothing to soothe traders’ nerves, briefly weakening the dollar and boosting tradeable Asian currencies. Genuine pressures for revaluation also persist. Above all, with Congress in a protectionist mood, the US administration insists that Beijing should move immediately to a more flexible currency regime…

On balance, the case for a sizeable revaluation is strong. But it must be delivered in the right domestic and international context. At home, China needs to find ways to promote domestic demand without another round of excessive investment and bad debt. Moreover, China must not move alone. Adjustments in exchange rates and in the balance between domestic spending and output must also occur in other surplus countries. Not least, the US must play its part by reducing the large fiscal deficits the Bush administration has so sedulously created.

Excerpted from the editorial of ‘Financial Times’, May 13