Greenspan calls on China to allow yuan to trade more freely

[HenryTo]

Quote: "However, a more flexible Chinese exchange-rate system wouldn't have a big effect on the U.S. trade deficit, Greenspan said. Instead, he said, goods from other low-cost countries would replace Chinese goods in the U.S. market." And let's say the average monthly wage for the manufacturing workers rises from the equivalent of US$150 a month to US$200 a month. How much would that add to the cost of, say, producting a TV set or a DVD player? Most probably not significant - and even negligible, IMO.
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Tuesday June 7, 12:03 PM

U.S. Federal Reserve Chairman Alan Greenspan on Tuesday urged China to allow its currency to trade more freely for the sake of its own financial health.

"I've said on numerous occasions I think it is to the advantage of China to allow a little more flexibility in the exchange rate," Greenspan told a conference of central bankers in Beijing, speaking via satellite video link from Washington.

He added: "It is omething that I am certain they will take on reasonably soon."

China fixes the exchange rate of its currency, the yuan, at 8.28 to the U.S. dollar. American manufacturers contend that undervalues the yuan by up to 40 percent, giving Chinese exporters an unfair advantage and hurting foreign competitors.

The government of U.S. President George W. Bush has been pressing China to let the yuan trade freely or to raise its state-set exchange rate.

To maintain its currency controls, China has to buy large quantities of U.S. dollars _ an arrangement that Greenspan said "cannot go on indefinitely."

He said the system hurts China by encouraging the inefficient allocation of economic resources, and that changing it would boost China's economy.

"In enhancing global growth, it is important that the structure of the Chinese economy be as flexible and integrated into the world economy as much as possible," he said.

However, a more flexible Chinese exchange-rate system wouldn't have a big effect on the U.S. trade deficit, Greenspan said.

Instead, he said, goods from other low-cost countries would replace Chinese goods in the U.S. market.

China's central bank governor, Zhou Xiaochuan, said the yuan rate "is an economic issue, not a political issue."

Zhou said China needs to carefully analyze the economic impact of changing its currency policy and make sure its financial system is prepared.