A modest rise in the Chinese currency would barely dent the massive US current account deficit, a preliminary analysis by Merrill Lynch showed on Wednesday.
China and the rest of Asia would have to revalue their currencies by at least 30 percent to have much impact, said a report by Merrill Lynch chief North American economist David Rosenberg.
Merrill Lynch did a "back-of-the-envelope" assessment of what a 10 percent revaluation of the yuan would do to the US economy, ignoring second-round impacts such as from higher interest rates, he said.
"And the answer is ... not much," he said.
Such a move in the yuan would amount to only a 1 percent move in the dollar's value against its major trading partners combined.
Within a year, Merrill Lynch estimated that a 10 percent yuan revaluation against the dollar would lift US import prices by 0.5 percent, core producer prices by 0.1 percent and would have no impact at all on core consumer prices, economic growth or the current account.
Over the same period, if the dollar underwent a similar move against all of Asia it would add 1.8 percent to US import prices, 0.3 percent to producer prices and 0.1 percent to both core consumer prices and GDP. The current account deficit would fall by only 0.1 percent as a proportion of GDP.
In terms of peak long-run impact, a 10-percent revaluation of the yuan alone would add 0.5 percent to import price inflation and have a 0.1 percent impact on core producer prices, core consumer prices, real GDP and the current account ratio.
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