For Brazil Lack of Growth and China’s Currency Are Distortions in World Market

Yuan, China's currencyFor Brazil’s central bank chief Henrique Meirelles, a stronger Chinese currency is “critical” for the good of the global economy. And he said that on Tuesday, April 20, joining a chorus of critics of China’s foreign exchange policy.

Speculation that China may soon revalue its currency and unveil a long-awaited shift in its exchange rate has intensified in recent weeks, and the Yuan is likely to figure in discussions at this week’s Group of 20 meeting of finance officials in Washington.

“I think it’s absolutely critical for the equilibrium of the world economy,” Meirelles said when asked by a Senator what the impact would be if China re-valued its currency.

Meirelles was speaking to the Senate’s Economic Affairs committee before traveling to Washington where the spring meetings of the International Monetary Fund and the World Bank will also be held.

“There are some distortions in world markets, one of them is a lack of growth and another is China” Meirelles said.

“China’s exchange rate is the result of the country’s big savings … this generates distortions for China itself.”

China has been under pressure from the United States and other countries to let the Yuan strengthen so that global products become more competitive vis-à-vis Chinese exports.

This month, Brazil’s Finance Minister Guido Mantega joined the debate when he said that a flexible currency policy in China “would be very good” for the global economy.

Last week, Brazilian President Lula da Silva met with his Chinese counterpart Hu Jintao in Brasilia at a summit of the so-called BRIC group of major emerging markets, which also includes Russia and India. But Lula da Silva did not mention the Yuan.

So far Hu Jintao has reiterated Beijing’s long-standing official description of its Yuan policy, saying that China remains on course to gradually put in place a managed floating exchange rate system.

Mercopress

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  • Mertin

    Protectionist Brazil lectures the world
    While I agree that China needs to be discouraged from it’s current policy of devaluing the renmimbi Brazil should remember the appallingly anti-competitive state of the Brazilian economy. Just the issue of transport across Brazil throws up:

    Distorted car and truck prices
    Distorted car and truck depreciation
    Lack of diesel car choice in an enormous country
    Insecure roads
    Exorbitant road tax, car insurance and road tolls
    Anti-competitive interstate taxation law

    Brazil has a dysfunctional economy and devaluation of the Chinese currency will not fix it. Steve Jobs of Apple recently gave his verdict on Brazilian taxation in response to a request for a Brazilian Apple store. It wasn’t pretty.

    Brazil needs to stop patting itself on the back for world commodity inflation and fix its bureaucracy and the burgeoning public sector.

  • Lloyd Cata

    Descriptive Words
    Specifically when foreign leaders speak I check the ‘adjectives’ and the only one I find relative to this article is “gradual”. The Chinese will indeed be ‘more’ flexible, but don’t expect them to continue propping up the dollar.

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