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The removal of current rigidities in the foreign exchange policies of several emerging Asian economies, particularly in China, would contribute to a better-balanced world economy, with benefits both in surplus and deficit countries, European Central Bank Executive Board member Lorenzo Bini Smaghi wrote in the Financial Times on Monday.
"A gradual appreciation of exchange rates in emerging Asia would lead to lower relative prices for traded goods, thereby raising purchasing power and stimulating domestic demand," Bini Smaghi said adding that it would push the export sector to improve productivity and invest in high value-added sectors. Moreover, a rise in forex rates would help to bring monetary conditions in these countries more closely into line with domestic requirements and avoid importing the monetary stance of the U.S., the policy maker said. It would also reduce the steady accumulation of international reserves, even after the crisis.
"A more balanced exchange rate regime would encourage higher savings in countries with current account deficits as well as reduce protectionist pressures, now on the rise in response to competitive distortions," the central banker wrote.
Global leaders have pressed China to let its currency appreciate. But, Chinese Premier Wen Jiabao has made it clear that China would not yield to foreign pressure to allow the appreciation of its currency in any form. "A stable Chinese currency is good for the international community," Wen said late December.
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