GENEVA — A U.N. agency urged China on Tuesday to reject Western pressure to float its currency, defending Beijing as a leader in stimulating domestic demand and the global economy.
In a policy brief, the U.N. Conference on Trade and Development, or UNCTAD, starts with the iconoclastic argument that market forces have caused “currency chaos” in the world and that international control of exchange rates would be better.
Leaving currencies to irrational market forcers “will not help rebalance the global economy,” and a Chinese decision in this direction would risk an economic shock akin to the one Japan suffered in the 1990s, it said. That, in turn, could destabilize the entire world economy.
The argument counters the advice of many economists, who say that China keeps its currency artificially low against the dollar to promote exports. This line of thought blames the currency control for the large and worrisome imbalances in the economic relationship between the U.S. and China: Americans import and borrow too much, while the Chinese export and save too much.
China recently surpassed Germany as the world’s top exporter, and many lawmakers in the U.S. and Europe want the Asian power to at least raise the peg of its tender, the yuan, to the dollar or face sanctions for being a currency manipulator.
The sentiment was reinforced Tuesday by a bipartisan group of U.S. senators, who said they would outline a new proposal for stiff penalties on Chinese goods, if the government fails to realign its currency.
U.S. Senator Charles Grassley, a Republican, told Fox Business Network on Tuesday that the United States should label China a currency manipulator and prepare a case for the World Trade Organization.
“I think we have waited too long,” Grassley said. “I would want the president to order our trade representative to start preparing a case for the WTO. And then I would have to start looking at some legislation, if China does not reply appropriately.”
He urged Beijing to act as a responsible member of the international community.
“I am tired of China crying. We are a 400-year-old society; they are a 5,000-year-old society. They are very mature,” Grassley said. “I expect China to start acting like adults, instead of crying like children.”
But China has repeatedly rejected U.S. calls to ease currency controls, with Premier Wen Jiabao denying over the weekend that the yuan was undervalued. He said foreign pressure was unhelpful, and that Beijing planned to reform its exchange rate system, but that the currency would be kept at a “stable and balanced” level.
Critics say the yuan is undervalued by up to 40 percent, giving China’s exporters an unfair price advantage.