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RMB exchange rate once again creates furor

Mar '10
Recently the RMB exchange rate against the dollar has raised a new round of confrontation between China and the United States. Last week, 15 members from the US Senate sent a letter to the Department of Commerce, asking the Obama administration to bring a transparency in the exchange rate; otherwise it would undermine manufacturing in the US.

The letter which was signed jointly by 10 Democratic senators and 5 Republican senators and sent to the Secretary of Commerce, Gary Locke said that, the Commerce Department did not properly investigate the issue of the RMB-dollar exchange rate, which has resulted in China manipulating the RMB exchange rate at a low level, so as to profit in the bi-lateral trade.

Although the United States has repeatedly put pressures on the Chinese government to free the RMB exchange rate, the Chinese government is very firm in the attitude of "holding stability" of the RMB exchange rate. A spokesman of Chinese Ministry of Commerce YAO Jian says that the issue of the RMB exchange rate is not the root cause for China's surplus and the United States' deficit.

"It is wrong and also a wrong prescription without basic judgments, if they take some of the problems in US economy or international economy as an excuse to blame the RMB exchange rate for economic imbalances," YAO Jian said.

Chinese industry sources point out that for every one percentage point of RMB appreciation, would mean a one percent reduction in net profit margins of labour-intensive industries and since at present these industries are netting a average net profit of just 3-5 percent in their operation, it would prove to be disastrous for the economic potential of the export sector in China.

Fibre2fashion News Desk

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