China to Free Its Currency From Dollar (NYT 09/30/04)

October 7, 2004

___International Monetary Fund calls for China to float its currency.

___China is expected to make some concession on its currency when it attends its first meeting with the Group of 7 wealthy, industrialized countries.

___I.M.F. argued that a more flexible currency would help control inflation in China.

___Democratic lawmakers, with the encouragement of American manufacturers and labor unions, will file a petition to force China to alter its currency. 

___Another matter that will be mentioned in the meeting is debt relief for the world's poorest nations.


China's currency is preferred at 8.28 yuan to the dollar. The International Monetary Fund wants China to float its currency, because its value is too high compared to the real value. The I.M.F. wants to depreciate the currency. This can help to reduce the United States trade deficit and improve the global economy. The current value has been accused of making foreign goods too expensive in China and Chinese exports too cheap. The managing director of the I.M.F., Rodrigo de Rato, said "There should be more flexible currencies, not only for China but the whole of Asia". 

The International Monetary Fund says that a more flexible Chinese currency would also assist in controlling inflation in China by calming its fast-growing economy. 

In the book, Chapter 10 is about the International Monetary System. It mentions that IMF loans come with tight macroeconomic policies, higher interest rates, and tight monetary policy. It tries to control price inflation by imposing monetary discipline on countries. In order to build flexibility into the system, IMF can loan funds to help protect currencies on the foreign exchange market. Their goal is to have equilibrium in balance-of-payments. China floating its currency can assist in leveling its trade imbalances with other countries and controlling its inflation. This will help other countries and China.

In the U.S., Democratic lawmakers will file a petition that will ask the administration to sue China at the World Trade Organization. Democratic lawmakers are saying that China has corrupted trade laws by failing to revalue its currency. They claim that China is overflowing the United States with their cheap exports, harming U.S. businesses unfairly.

In an additional important matter at the meeting, Mr. de Rato will join with James D. Wolfensohn, president of the World Bank, to support debt relief for the world's poorest nations. For example, Zambia is one of the countries in which the government is spending more on debt repayments than on education. Britain announced that it would pay off 10 percent of the total owed by poor countries. 

The administration of the United States did not convince the rest of the Group of 7 to engage on debt relief for Iraq. The other countries said that Iraq is too wealthy for standard debt relief. 

China has an expanding role in the global economy and is a big market, but it has not had many international responsibilities. It must now satisfy the demands other nations that it be a cooperative partner in world affairs.