A UN think tank yesterday backed China’s controls on the yuan despite US and EU pressure, saying that exposing the Chinese currency to the money markets would pose greater global risks.
“Expecting that China will leave its exchange rate to the mercy of totally unreliable markets and risk a Japan-like appreciation shock ignores the importance of its domestic and external stability for the region and for the globe,” the UN Conference on Trade and Development (UNCTAD) said.
China has been under intense pressure from the US and the EU, to allow its currency to appreciate. Washington and Brussels claim that Beijing has intentionally kept the currency low to boost its exports, in a bid to exit from the global economic crisis.
UNCTAD, however, said that China has “done more than any other emerging economy to stimulate domestic demand” in order to mitigate the crisis.
As a result, domestic private consumption rose about 9 percent last year, said UNCTAD, “backed by salary increases in the two-digit range.”
Labor costs are therefore rising at a faster pace than elsewhere, “resulting in a continuous loss in competitive power even with a fixed exchange rate,” UNCTAD said.
It also warned that speculation has returned to the markets and that emerging economies could fall victim.
“The global casino, nearly empty a year ago, is crowded again, and many new bets are on the table,” it said.
“The effects of the new exuberance on financial markets are adverse for countries with once-fragile currencies, such as Brazil, Hungary and Turkey,” UNCTAD said.
It also backed Brazil’s move to tax equities and fixed income investment inflows by foreigners.
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