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Economy

China's currency policy not to blame: Thai economist

(Xinhua)
Updated: 2010-02-22 22:53

BANGKOK: China's current currency policy does not affect other countries' export and its stability is vital to world economy, a senior Thai economist said Monday.

The Renminbi rate is not the main factor for China's trade surplus with the United States and the European Union, Associated Professor Dr. Sompop Manarungsan from Faculty of Economics, Bangkok-based Chulalongkorn University said in an interview with Xinhua.

Instead, production cost, particularly low labor cost, is the real reason that China remains trade surplus with the United States, Sompop said, elaborating that the average US annual income is 15 times higher than that of the Chinese people.

Therefore, even the dollar exchange rate were reduced to half of its present level, the United States still can not solve the problem of trade deficit with China, he said.

"The Japanese yen is a example. Since the Plaza Accord inked in 1985, the Japanese yen has been highly appreciated, but up to now, the United States still could not solve the trade deficit problem with Japan, even though now US dollar values less than half against Japanese yen when compared with 20 years ago," Sompop said.

The Plaza Accord was an agreement signed by the governments of France, West Germany, Japan, the United States, and the Britain on September 22, 1985 at the Plaza Hotel in New York City, to depreciate the US dollar in relation to the Japanese yen and German Deutsche Mark by intervening in currency markets. The exchange rate value of the dollar versus the yen declined by 51 percent from 1985 to 1987.

Commenting on the argument that developing countries or emerging market countries are the victims of China's currency policy, Sompop said that it is totally wrong, because the Renminbi exchange rate largely depends on the movement or direction of US dollar

"I don't think that emerging market countries or developing countries are highly affected by Renminbi rate, as you know that those countries have been gaining from trading with China, not facing heavy trade deficit," he said.

He said the China's current currency policy does not affect emerging market countries' export, for example, in January alone, China's import value has risen over 80 percent when compared with the same time last year.

He also suggested the United States rethink its currency policy and work out ways to benefit both domestic and the global economy.