Coping with Global Imbalances and Asian Currencies

With the region's ever-growing foreign exchange reserves, the reluctance of Asian countries to allow their currencies to appreciate is often viewed as a main hurdle to the orderly resolution of the United States's (US) external imbalance. The renminbi of People's Republic of China (PRC) has become a major target of such criticism, given the PRC's substantial bilateral trade surplus against the US and large accumulation of foreign reserves over the years. This policy brief analyzes macroeconomic impacts of a 'one-off' appreciation of the renminbi against the dollar using the Oxford Economic Forecasting (OEF) model to shed light on the dynamics between global imbalances and revaluation. The OEF model framework allows scenario analyses based on the global econometric structure, which will provide some quantitative results for the impacts of a revaluation on the concerned economies, such as the PRC, Japan, US and other Asian countries.