The pressure is mounting. Somehow I suspect that Mount St. Helen's is going to be a much bigger blast than anything coming out of the upcoming G-7 meeting.
The International Monetary Fund added its voice on Wednesday to the growing calls for China to float its currency immediately, a move that supporters say would help reduce the United States trade deficit and strengthen the global economy.Every careful observer knows there is no chance in hell that China is going to float the renminbi. That being said, a one-time upward revaluation is indeed possible and necessary for all concerned.
On the eve of annual meetings here with the World Bank, Rodrigo de Rato, the managing director of the I.M.F., said that it would be to China's advantage to uncouple the yuan from the dollar.
The tight link to the United States currency has been blamed for making foreign goods too costly in China and Chinese exports unfairly inexpensive.
"There should be more flexible currencies, not only for China but the whole of Asia," Mr. de Rato said to a group of 10 journalists at his headquarters.
Of course, these pressures have been building for years and the Bush administration hasn't done thing one about it. In fact, as long as Bush & Greenspan are determined to run massive fiscal deficits and rely on the Chinese (among others) to finance it, as well as nurture the housing bubble and rely on the Chinese (among others) to keep rates down and buy up Fannie Mae and Freddie Mac bonds, they can't push for a revaluation which will cut into China's current account surplus and thus into US government debt.
Remember, central banks aren't buying t-bills and the like because they're a good investment, so there is no reason to believe that if the People's Bank of China stops buying that private US investors, newly enriched by higher exports and lower import competition, will pick up the slack. And will a Chinese revaluation really have that much impact on the US current account deficit?
Renminbi revaluation pool, right here. Place your bets -- amount and date.