China’s Exchange Rates Could Use Flexibility

Re “A ‘Floating’ Chinese Currency Is No Life Raft for U.S. Jobs,” Opinion, March 28: Sam Crane correctly argues that China’s exchange-rate policies are not a major cause of the huge U.S. trade deficit and that the recent political scapegoating of China is misplaced. When he turns to China’s interests, however, he gets some of his economics wrong. He rightly notes that inflation is an emerging problem but wrongly argues that a revaluation would increase inflation. This is backward.

Revaluation lowers import prices. It would reduce the large balance-of-payments surplus that has contributed to the rapid rate of domestic money growth. Crane is right that a large revaluation will have disruptive effects. That’s a major problem with the adjustable-peg regime that China has adopted. China does not have the financial development necessary for a free float, but it is in China’s own interest to move toward greater exchange-rate flexibility.

Thomas D. Willett

Horton Prof. of Economics

Claremont Colleges