Yuan vs. Dollar

Chinese Premier Wen Jiabao says his country will not appreciate its currency for the foreseeable future while it slowly sells off its dollar reserves; Paul Krugman says a yuan appreciation would boost the world economy. “‘I don’t think the yuan is undervalued,’ Wen said at a press conference in Beijing marking the end of China’s annual parliamentary meetings. Dollar volatility is a ‘big’ concern and ‘I’m still worried’ about China’s U.S. currency holdings, he said. Wen urged America to ‘take concrete steps to reassure investors’ about the safety of dollar assets, repeating concerns that he expressed a year ago, sparked by a growing U.S. fiscal deficit. Treasury Department figures show China’s holdings of Treasury securities dropped for a second month in December to $894.8 billion. Wen’s comments come as lawmakers in the U.S. call for retaliatory trade measures to compel appreciation. On March 11, President Barack Obama urged the nation to move toward a more ‘market-oriented exchange rate.’ Economist Paul Krugman said March 12 that global growth would be about 1.5 percentage points higher if China stopped restraining the value of its currency and running trade surpluses. ‘This is a sign that there will be no one-off revaluation in coming months,’ said Lu Ting, an economist at Bank of America-Merrill Lynch in Hong Kong. ‘China’s top policymakers do have their own currency reform plans but coercion from other countries will do disservice to this cause.'”