A Quote by Rodrigo Rato
We have believed for many years, much earlier than anyone else was talking about this issue, that it was in the interest of China to evolve to a more flexible exchange rate system.
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Let's start with the euro. What on earth were we thinking? How could anyone with the faintest grasp of economics have believed it was anything other than sheer insanity to yoke together diverse national economies such as Greece, Ireland, Germany and Finland under a single exchange rate and a single interest rate?
The U.S. berates China for its exchange rate policy, which Washington doesn't like. But one-sided pressure on China to change its exchange rate is misplaced.
If a country is an attractive place for foreigners to invest their funds, then that country will have a relatively high exchange rate. If it's an unattractive place, it will have a relatively low exchange rate. Those are the fundamentals that determine the exchange rate in a floating exchange rate system.
Whether history will view Ronald Reagan as a great president depends, more than anything else, on one question: how much credit does he deserve for the fact that the Cold War ended far earlier than almost anyone suspected - and on terms that Americans had fantasized about for 45 years?
It's a good thing that it is getting simpler to register a company in China, it is good that the exchange rate of our currency is getting more flexible and that it's getting easier for Chinese businesspeople to travel. All of this opens up our economy.
The problem is that, in a world of floating exchange rates, as Italy was before the euro, if one country is subjected to a shock which requires it to cut wages, it cannot do so with a modern kind of control and regulation system. It is much easier to do it by letting the exchange rate change. Only one price has to change, instead of many.
Monetary policy is like juggling six balls... it is not 'interest rate up, interest rate down.' There is the exchange rate, there are long term yields, there are short term yields, there is credit growth.
What is applicable is to understand that first of all China has undergone a huge revolution in the last years. Anyone who saw China as I did in 1971 - and for that matter even in 1979, because not much had changed between 1971 and 1979 - and sees China today, knows one is in a different economic system.
China has to move to a more flexible foreign currency trading system, no question about that. You might see two or three moves to widen the band, say to 0.5 percent.
A flexible exchange rate is important, and it shouldn't be artificially restrained because of the needs of the economy.
The lesson for Asia is; if you have a central bank, have a floating exchange rate; if you want to have a fixed exchange rate, abolish your central bank and adopt a currency board instead. Either extreme; a fixed exchange rate through a currency board, but no central bank, or a central bank plus truly floating exchange rates; either of those is a tenable arrangement. But a pegged exchange rate with a central bank is a recipe for trouble.
My life isn't necessarily more important than anyone else's: I'm just better in talking about it.
The IMF insisted that both Russia and Brazil maintain their currency at over-valued levels. Who are you protecting when you try to maintain that exchange rate by having high interest rates? You're protecting domestic and foreign firms that have gambled on the exchange rate. And who is paying the price? The small businesses that did not gamble [and no longer can afford loans], the workers who are going to be put out of jobs.
Since China embraced Deng Xiaoping's reforms on 22 December 1978, China has experimented with different exchange-rate regimes. Until 1994, the yuan was in an ever-depreciating phase against the U.S. dollar.
When they so-called 'target the interest rate', what they're doing is controlling the money supply via the interest rate. The interest rate is only an intermediary instrument.
No one born in the 1950s took much interest in my generation, and all we've done is try to fix it by talking to the people who came after us. I don't hang out with anyone who is 10 years older than I am, but I hang out with a lot of people who are 10 years younger.
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