Nobel Prize-winning economist Paul Krugman said global economic growth would be about 1.5 percentage points higher if China stopped restraining the value of its currency and running trade surpluses.
Krugman said China’s currency policy has a “depressing effect” on economic growth in the US, Europe and Japan, as measured by GDP. If China’s currency, the yuan, were not undervalued, it would have a “significant” impact on the global recovery, he said.
“If we could get some change in China’s currency policy, it would help the world,” Krugman said at an Economic Policy Institute event in Washington on Friday.
The US has refrained from calling China a currency manipulator, while also criticizing its lack of flexibility in foreign exchange policy.
The Chinese central bank has kept the yuan at about 6.8 per US dollar since July 2008, as part of stimulus efforts to help China weather the global recession.
The IMF predicted in January the world economy will expand 3.9 percent this year after a contraction of 0.8 percent last year. China’s economy was forecast to grow 10 percent this year and 9.7 percent next, the IMF said.
Krugman said the world economy wouldn’t be hurt, and could benefit, if China were to sell off a large portion of its dollar-denominated assets.
He said that if China were to sell all of its US investments, it would help the economy by acting as a form of quantitative easing and fighting a “liquidity trap” that has recently been affecting the US economy.
“We should not be afraid of what the Chinese might do if we pressure them to stop this currency manipulation,” Krugman said.
Krugman said the US may need to get more aggressive in its negotiations with China, perhaps by treating the exchange-rate issue as a countervailing duty or other export subsidy.
China’s central bank said a stronger yuan wouldn’t help solve the trade imbalance between China and the US after US President Barack Obama repeated his call for the Asian nation to move to a “market-oriented exchange rate.”
“We do not think a country should rely on others to solve its own problems,” Su Ning (蘇寧), deputy governor of the bank, said on Friday, Xinhua news agency reported.
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