By Hao Li: Subscribe to Hao's RSS feed
September 25, 2010 1:18 PM EDT
Many Western government officials -- including European Central Bank (ECB) President Jean-Claude Trichet and Federal Reserve Chairman Ben Bernanke -- have attributed the worldwide financial crisis to global imbalances.
Global imbalances in this case refer to the phenomenon of emerging economies selling and lending to mature economies, which results in Western governments running trade deficits and accumulating debt.
Trichet warned if these imbalances return and persist in the post-crisis world, they would serve as "the recipe for a new crisis." Bernanke said one solution to this is "greater exchange rate flexibility," which is essentially saying certain developing countries, like China, should let their currencies appreciate.
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The West, mostly the U.S., is also looking for emerging market economies to help its economy recover. The Obama administration is openly encouraging American businesses to export more through the National Export Initiative.
"Helping American companies sell more abroad will create jobs and boost our economy," said U.S. Commerce Secretary Gary Locke.
Recently, President Obama and Treasury Secretary Timothy Geithner have stepped up rhetoric against China and called for more rapid appreciation of the yuan. They argue the yuan is artificially cheap, which makes it easy for China to sell to the U.S., but not vice versa. This then hurts American exporters and the overall jobs market.
There is one big problem, however, with what Western countries want: developing countries simply may not allow their currencies to appreciate.
That's the opinion of Mohamed El-Erian, at least, who said the "list of industrial countries wishing to depreciate their currencies is not matched by a list of emerging economies happy to let their currencies appreciate significantly."
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