China and other fiscally strong countries advised to carry out their individual monetary policies
A policymaker from European Central Bank said that the fiscally strong countries along with China should carry out their personal policies regarding financial matters instead of keeping the currencies peg to American dollar. Executive Board member of ECB, Lorenzo Bini Smaghi at International Monetary Fund and World Bank meetings in Istanbul said that to make progress China should take on their own fiscal policies and detach them Fed’s policy.
Lorenzo added that fiscally strong countries should adopt their own strategies and de-peg themselves from the dollar. Tracking the dollar makes it difficult for the policymakers to evade tracking rate of interest moves by American Federal Reserve. The comments made by Lorenzo struck with Governing Council member of ECB, Alex Webber, who said by economic policy interferences the foreign exchange rates of certain countries were falsely even out.
Talking about the involvement of China, Lorenzo added that they should talk to several Asian countries on this matter. There are still many countries those who have healthy peg to the dollar and correspondingly low rate of interest currently. With the purchasing of the currencies, monetary policy is more liberal there as compared to what the situation actually allows. He also added that they will witness the rates of foreign exchange becoming more flexible in the near future.
Time and again China has declared that they are still in the process of improving their rate of exchange system which allows the yuan act more flexibly. But this will not permit the moves which could weaken their economy. Practically since the month of July 2008, the central bank of China has kept the yuan flat against America with the deterioration of the global economy.
During the global economic slump, that policy didn’t face too many condemnations as China seemed to offer stability to the markets across the world. But with the global economy getting better China has started to collect more pressure from the public to let their currency get appreciated, as a method of cutting their big trade surplus and rectifying their worldwide unevenness.
Lorenzo also added that there are still many countries which haven’t admitted the involvement of markets from different parts of the world and are making an effort to develop by making use of the future resources. He said that probably several parts of the developed world have to grow less in order to let other parts to grow at a faster pace. Some elements of the developed world have recognized that they need to develop less but there are still some parts which have not realized that they are making efforts to develop by borrowing on the future.
Lorenzo added that the central banks should give more attention towards the money and credit development at the time of setting the rate of interests in order to keep away from the formation of the asset issues.