The revaluation of renminbi (RMB) will not solve global imbalances and the US trade deficit, a study of Asian Development Bank (ADB) said yesterday.

ADB Economist Cyn-Young Park said in her paper, "Coping with Global Imbalances and Asian Currencies", that a projected 10 per cent revaluation of the RMB, or yuan, would only improve the US trade balance by US$3.6 billion, a mere 0.02 per cent change in the current account or 1 per cent in its gross domestic product.

The situation would change little even with a 20 per cent revaluation, which would contribute only a 0.05 per cent reduction in the current account deficit, according to the macroeconomic simulations conducted by Ms Park.

"Despite the Chinese significant trade surplus with the US, this is the case because exports from China account for a relatively small share of total US imports and exports to China constitute an even smaller share of total US exports," she argues.

More importantly, if RMB revaluates, the reduced exports from China would likely be offset by increased imports from other Asian countries and regions, according to the study.

And US exports to China will not dramatically increase following a yuan revaluation. As such, a revaluation will curb China's demand for imports, she said.

"Normalization of global imbalances requires more fundamental changes in both the US and the international economy," says Ms Park.

"The US Government should step up efforts to continue to rein in expansionary macroeconomic policies, restrain fiscal spending and ensure financial prudence in the private sector,

"The rest of the world needs to make conscious efforts to alleviate external imbalances by encouraging domestic demand and narrowing the growth gap."

(HK Edition 06/03/2005 page3)