Gene Frieda — China’s Difficult Balancing Act

China needs to keep growth high enough to maintain social stability, but also must preserve external stability via the renminbi’s exchange rate. How China manages its currency during its economic policy shift could have important global consequences.

China is not sovereign in its currency since it pegs to the dollar. Currency sovereignty requires floating the rate whereas as peg sets a fixed rate. This means that China domestic policy is constrained by have to manage the exchange rate within the corridor of the peg.

China needs to float the RMB to return to currency sovereignty and manage its economy instead of managing the exchange rate. As Russia did when hit by US sanctions.

Project Syndicate
China’s Difficult Balancing Act

Gene Frieda | executive vice president and global strategist for PIMCO