China’s trade balance is on course for another bumper surplus this year. Meanwhile, concern about the health of the US recovery continues to mount. Both developments suggest that China will be under renewed pressure to nudge its currency sharply upward. The conflict with the US may well come to a head during Congressional hearings on the renminbi to be held in September, where many voices will urge the Obama administration to threaten punitive measures if China does not act.
In all this discussion, the renminbi is viewed largely as a US-China issue, and the interests of poor countries get scarcely a hearing, even in multilateral fora. Yet a noticeable rise in the renminbi’s value may have significant implications for developing countries. Whether they stand to gain or lose from a renminbi revaluation, however, is hotly contested.
On the one side is the argument (made most prominently by Arvind Subramanian) that developing countries suffer greatly from China’s policy of undervaluing its currency, which makes it more difficult for them to compete with Chinese goods in world markets, retarding their industrialization, and setting back their growth.
On the other side is the argument (made by Helmut Reisen and his colleagues) that developing countries, and especially the poorest among them, would be hurt if the renminbi were to rise sharply. Their reasoning is that currency appreciation would almost certainly slow China’s growth, and that anything that does that must be bad news for other poor countries as well.
Which is it?
Find out here.