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China won’t keep currency undervalued

Scott Tong Mar 8, 2010
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China won’t keep currency undervalued

Scott Tong Mar 8, 2010
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TEXT OF STORY

Bill Radke: For a quite awhile now, U.S. officials have been criticizing China for keeping its currency undervalued. Well it might not stay that way for long. Over the weekend, a top Chinese leader gave the strongest signal yet that change is on the way. From Shanghai, Marketplace’s Scott Tong tells us now why this matters.


Scott Tong: China’s currency level is pegged to the dollar, or at least has been for the last year and a half. But Beijing’s top central banker calls that a “temporary response” to the world recession that will be withdrawn sooner or later.

Critics say China’s currency is artificially low. Think of it this way: If a Chinese factory exports a fleece blanket for 3 bucks wholesale, a higher currency could make it $4. Good for competing countries, bad for China.

So why would Beijing do it? For one, to get Washington off its case, says economist Tao Wang at UBS Securities:

Tao Wang: The rmb really has been a target for a long time. And this year, I think the rise of protectionist legislation could become more real.

A currency boost would also help Chinese consumers. They’d have more buying power to import, say, oil from Angola, or wine from California. China wants to be less dependent on exporting low-cost junk and more dependent on consumers at home.

In Shanghai, I’m Scott Tong for Marketplace.

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