April 22, 2010 3:00 am
China is facing growing pressure from developing countries to begin allowing its currency to appreciate, providing unexpected allies for the US in the diplomatic tussle over Beijing's exchange rate policy.
Speaking ahead of a meeting of finance ministers and central bank heads from the Group of 20 countries which starts today in Washington, Indian and -Brazilian central bank presidents have made the most forceful statements yet by their countries about the case for a stronger renminbi.
While most of the public pressure on China has come from the US, the comments underline that a number of developing economies feel that China's dollar peg has imposed costs on their economies.
Henrique Meirelles, head of the Brazilian central bank, said that a stronger Chinese currency was "absolutely critical for the equilibrium of the world economy". He said there were "some distortions in world markets, one of them is a lack of growth and another is China".
Duvvuri Subbarao, governor of the Reserve Bank of India said that an undervalued renminbi was creating problems for countries, including India.
"If China revalues the yuan, it will have a positive impact on our external sector," Mr Subbarao said. "If some countries manage their exchange rate and keep them artificially low, the burden of adjustment falls on some countries that do not manage their exchange rate so actively."
Lee Hsien Loong, prime minister of Singapore, added his country's voice to the debate last week, saying it was "in China's own interests" with the financial crisis over to have a more flexible exchange rate.
Some in China have fended off US pressure for a stronger currency, describing it as a distraction from the real causes of the financial crisis. However, criticism from developing countries is not so easy to bat away. "If the rich and emerging economies are united in asking China to revalue, it would be harder to dismiss the request as an example of superpower arrogance," said Sebastian Mallaby at the Council on Foreign Relations.
The increase in criticism of China comes at a time of relative calm between Beijing and Washington over the issue, with many US officials and analysts assuming China has already decided to abandon its peg with the dollar over coming months.
The impact of China's currency policy on other developing countries is not clear-cut, however. Although a number have seen their currencies appreciate sharply over the past year, putting pressure on their exports and exposing them to fiercer competition from China, the economic recovery in China has also provided a boost, especially for its neighbours in Asia as well as commodityproducing countries such as Brazil.
Although there have been strong signs in recent weeks that China is preparing to shift policy, a number of prominent officials continue to oppose any immediate changes.
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