Roubini: China Will Let Currency Rise 4 Percent

Friday, 12 Mar 2010 09:40 AM

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China will limit the yuan's appreciation to 4 percent during the next 12 months because of a "super cautious" outlook on the global economy, according to New York University professor of economics Nouriel Roubini.

“It will be less than what they did in 2005 when everything was going right,” Roubini says.

“They will move by a token amount. The world is much cloudier in every dimension. They are super cautious,” he told Bloomberg.

Roubini’s forecast is 1 percent less aggressive than the median estimate in a Bloomberg survey of 20 analysts for the yuan, also known as the renminbi, to rise 5 percent to 6.50 per dollar by March 31, 2011.

“Most people are concerned about inflation,” Roubini notes. “I am worried about the export-led growth model … a weak currency and low interest rate is a massive transfer of wealth from household income to enterprises. It will take more than three, five years to change China’s model of growth.”

China’s central bank Governor Zhou Xiaochuan warned recently that China should be “very cautious” in exiting policies adopted during the global financial crisis, including the exchange-rate link, The New York Times reports.

He called China’s practice of pegging the renminbi to the dollar a “special foreign exchange mechanism” made to respond to the world financial crisis.

Such mechanisms will be abandoned “sooner or later,” the bank governor said, but “we must be very cautious and discreet in choosing the timing.”

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