China and the Yuan
Letter to the Editor
Desmond Lachman | International Herald Tribune
December 04, 2006
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One can certainly agree with Joergen Oerstroem Moeller's contention in "Leave the yuan alone" (Views, Nov. 30) that the U.S. balance of payments deficit is largely the homegrown consequence of the paucity in U.S. domestic savings. However, to absolve China from any responsibility in contributing to today's record global imbalances sits very uncomfortably with the facts.

Resident Fellow Desmond Lachman
Resident Fellow Desmond Lachman
China aggressively intervenes in the market to keep its currency undervalued as the means to foster its impressive export-led growth. As a result, China's trade surplus with the rest of the world has ballooned to more than $130 billion so far this year. At the same time, its foreign currency reserves now exceed $1 trillion.

If China is to avoid a major protectionist backlash in both Europe and the United States, it will need to wean its economy from its overdependence on exports. A significant revaluation of the yuan will necessarily have to play an important role in any such rebalancing effort.

Desmond Lachman is a resident fellow at AEI.

About the Author

 

Desmond
Lachman
  • Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund's (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and the multilateral lending agencies.
  • Phone: 202-862-5844
    Email: dlachman@aei.org
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