Who pays for the weak renminbi?
China’s exchange rate policy has largely been viewed through the prism of global imbalances. This has had three unfortunate consequences. First, it has allowed China to deflect attention away from its policy. Second, it has obscured the real victims of this policy. And third, it has made political resolution of this policy more difficult. No sooner is China’s exchange rate policy criticised for creating global imbalances, and hence contributing to the recent global financial crisis, than the door is opened for China to muddy the intellectual waters. “Why single us out?” the Chinese say, “Why not the other surplus-running countries such as Japan or Germany or the oil exporters? And, in any case, countries on the other side of the imbalance – namely, the large current account deficit-running countries – should carry the greatest responsibility for pursuing irresponsible macroeconomic and regulatory policies that led to “excessive consumption”. This debate cannot be settled (Blanchard and
