Why a More Flexible Renminbi Still Matters

Given the sharp drop in China’s current-account surplus, should the US, the IMF, and other players stop pressing China to move to a more flexible currency regime? The answer is “no,” because China’s economy is still plagued by massive imbalances, and a more flexible regime would provide an important stabilizer.

CAMBRIDGE – One of the most notable macroeconomic developments in recent years has been the sharp drop in China’s current-account surplus. The International Monetary Fund is now forecasting a 2012 surplus of just 2.3% of GDP, down from a pre-crisis peak of 10.1% of GDP in 2007, owing largely to a decline in China’s trade surplus – that is, the excess of the value of Chinese exports over that of its imports.

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