Yuan revaluation may not be solution to U.S. deficit

Jeerawat Na Thalang, Asia News Network, The Nation/Bangkok

Former U.S. Trade Representative (USTR) Charlene Barshefsky says the revaluation of yuan currency may not be a solution to help correct the U.S. trade deficit, as the Bush administration has hoped for.

Speaking on the sidelines of the Asia Society's conference on Friday in Bangkok, the former USTR under the Clinton administration said: "I think a revaluation will unlikely have a significant impact on the U.S. trade deficit with China, if any impact at all." The United States is running a current account deficit of more than US$500 billion a year, with external debt of more than $3.3 trillion.

The chronic deficit is now recognized as a serious problem of global imbalances that, if left alone, could lead to global financial crises.

Barshefsky, who is now a senior international partner of Wilmer Cutler Pickering and Dorr LLP, said one would need to see a "quite massive revaluation in order to achieve any hope for price effect. I don't think a massive revaluation is on the cards. So I don't see much effect on the revaluation of Chinese yuan."

She added that the U.S. administration might make policy decisions on the basis of what indeed was a faulty assumption that the U.S. deficit would be sharply reduced by the revaluation of the yuan.

Barshefsky said that, nonetheless, there was a reasonably high degree of consensus among independent economists that China was in a position to expand the trading band of the yuan.

But China is certainly not in a position to float the yuan. Substantial preparatory work especially in the banding system has to be undertaken before the float would be a realistic option, she added.

"With respect to widening the trading band or using the basket of currencies, I believe there is some merit to the argument, particularly when one considers the positive impact on china of taking such action."

Asked to guess what the yuan rate after the revaluation would be, the former top U.S. trade negotiator said, "I have absolutely no idea. But a number of organizations have estimated the range as being 9.5 to 40 percent. But I believe that figure is more educated guesswork than hard analysis."

China's rising economy was one of the topics of discussion on Friday. Laura Cha, member of the executive council of Hong Kong, declined to speculate on when the revaluation of the yuan would take place.

She said the Chinese government could be under pressure not to revalue the yuan at the moment because first, the government does not want to be seen as doing so under external pressure and second, the domestic financial system is not ready yet.

Ong Keng Yong, secretary-general of the Association of Southeast Asian Nations (ASEAN) said that China had been a catalyst for Asean integration over the past seven to eight years as the country had been fast catching up with other economic powerhouses such as Japan and the U.S.