China’s decision to widen the yuan’s trading band for the first time since 2007 may end up disappointing the U.S. by helping to weaken the currency, Nobel laureate Joseph Stiglitz said.
China today said it will increase the range in which the yuan can trade to 1 percent from 0.5 percent. While the currency reached an 18-year high at 6.2884 per dollar on Feb. 10, President Barack Obama’s administration has said it remains too weak and gives an unfair trading edge to China’s exporters.
Alongside steps to allow greater investment to flow out of the country, the measure may “lead to a fall in the exchange rate rather than appreciation,” Stiglitz told reporters at a conference in Berlin today. “What may be happening is that a free market exchange rate may not go in the way the U.S. thinks it should. That would twist the knife.”
U.S. criticism of China has already been “defanged” by reports the International Monetary Fund will next week lower its forecasts for China’s medium-term current-account surplus, Stiglitz said. The fund in September estimated surpluses of more than 7 percent of gross domestic product for 2015 and 2016.
The “U.S. Treasury even knows” about the declining trade gap, said Stiglitz, who teaches at Columbia University in New York. “They just feel by habit they have to badger China.”