The idea that China is at the front of a currency war with the dollar and euro is simply a "romantic fiction", and in fact the yuan has risen by almost 25% against the dollar over the past five years, says noted currency economist Jim O'Neill.
The G20 summit ended with rather vague promises and delayed decisions. There had been talk of targets to settle trade and currency disputes. But the communique only promised new guidelines to identify "large imbalances that require preventive and corrective actions".
World Business News's Mike Johnson asked Jim O'Neill, the chairman of Goldman Sachs Asset Management, what the new currency guidelines might look like:
The transcript is below.
Jim O'Neill: Ah good question. You know, importantly as ambitious and as complex as that could be, importantly they're starting from a position where in my judgement global imbalances are already improving.
This idea that the Chinese are at the front of some currency war is like some kind of romantic fiction of people's minds
We had the latest Chinese trade data earlier this week - we've had ten months of the year - China's trade surplus is going to be not much more than 3% of GDP, which is less than half what it was three years ago. Even though the US current account deficit remains large, it is also about half the level it was three years ago. So these two that are at the core of this global issue, and by making some broad commitments, at a minimum it means there's focus on it to make sure policies in both those countries aren't geared towards making those imbalances grow further.
So, it is difficult to find the exact critieria to guide definitive current account target planning, but they're starting from a reasonably strong position of things growing in the right direction, anyhow.
MJ: So do you think, in some senses, this issue of global imbalances - some countries exporting too much, other countries not consuming enough - is that going to just simply resolve itself, for the reasons you've talked about with the Chinese allowing their currency to rise a little bit in recent weeks?
JO'N: Well, I was in Asia myself for much of the preceding two weeks, and on some of these well-used phrases that we use so much here in the UK and the States, you know, many Asian policymakers call the global credit crisis the north Atlantic crisis. You know, the world doesn't look the same as seen from an Asian lens as it does from a European or US one. And European leaders have to realise that.
The second thing is, the Chinese currency has now risen over the past five years by close to 25% against the dollar, and nearly that much against the euro as well. So - so this idea that the Chinese are at the front of some currency war is like some kind of romantic fiction of people's minds - and it's a slightly dangerous one in that as well.
MJ: And what do you think the outcome of this G20 tells us about any new balance of power in the global economy, because it seems that by no means is China being pushed around by the likes of the United States on the issue of currency strength?
JO'N: Well, I think that's certainly one of the features of it, and of course the whole advent of the G20 was done to bring in China and the other so-called BRIC nations into the centre of global policymaking.
One of the consequences of that, which is now perhaps dawning on the US and Europe, is that they're going to hear a different view and ones with a different tone and opinion. But that's the nature of the modern globalised economy and the US and others have got to realise that.
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