Persistent calls by the U.S. for the Chinese government to further appreciate the Chinese currency are unlikely to lead to any meaningful change, according to TD Bank Financial Group’s chief economist.
Craig Alexander said in an interview with Business in Vancouver, “The more the U.S. puts pressure on China to allow their currency to appreciate, the less likely China’s going to be willing to do it.”
He suggested a multilateral dialogue is more likely to produce results where the implications of misaligned currency exchange rates are openly discussed. His concern is that further political pressure by the U.S. on China could ultimately lead to trade protectionism, “which would only be detrimental to the world economy.
“I think the most constructive thing would be to dialogue with China and convincing them that a higher exchange rate is actually in their own interest. They’re worried about their economy overheating and one solution would be to allow the currency to appreciate.”
A recent TD Economics report forecasted China’s economy to grow 10.2% this year and expand a further 9.3% in 2011. The slowdown is partially due to efforts by the Chinese government to cool down certain real estate markets in the country, like those in Beijing and Shanghai.
According to Alexander, direct political influence in the financial system is one reason why it would be persistently difficult for the Chinese renminbi to become a free-floating currency like most global currencies for many years to come.
More insights from Alexander on his forecast for B.C. and Canada are in this week’s print edition of Business in Vancouver.