Date of Original Version

5-2004

Type

Response or Comment

Abstract or Description

Recently there have been several efforts by officials of the U.S. government to persuade the government of China to adopt a floating exchange rate for the renminbi (RMB). According to most accounts, the U.S. motivation stems in large part from a belief that the RMB’s value would rise relative to the dollar, thereby making Chinese goods temporarily more expensive in the United States and leading, presumably, to a temporary reduction in China’s bilateral trade surplus with the United States. Thus it is likely that what these government officials actually desire is a RMB appreciation, not a floating rate. Such a movement would perhaps be popular with U.S. manufacturers of export goods and with some trade unions. For the U.S. government to base its position regarding Chinese policy on such domestically- motivated and short-term considerations is, however, antithetical to free market principles that stem from economic analysis and which our government usually promotes (at least nominally).

Comments

Presented at Shadow Open Market Committee meeting, May 2004.

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