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Bernanke: Trump's View on China's Yuan Doesn't 'Fit With Reality'

Image: Bernanke: Trump's View on China's Yuan Doesn't 'Fit With Reality'

By    |   Tuesday, 17 Jan 2017 08:49 AM

Former Federal Reserve Chairman Ben Bernanke said President-elect Donald Trump’s view on China and its currency doesn’t “fit with reality.”

Trump has often alleged that China is a currency manipulator in a bid to gain competitive advantage in trade. Trump also has threatened to impose a tariff of as much as 45 percent on China's exports to the U.S.

"One of the things the candidate said he would do was label China a currency manipulator, which means that China is keeping its currency artificially low in order get an advantage in exports," said Bernanke, led the U.S. central bank from 2006-2014.

"Of course, China right now is working very hard to keep the renminbi from falling. So it's a little bit inconsistent," Bernanke told a Washington Press Club video conference at the UBS Wealth Insights conference held in Singapore, Fortune reported.

Bernanke predicts a "little bit of friction" between China and the U.S. over trade, but doesn’t expect a full-blown trade war.

"Our trading system is very important to our economy," Bernanke said.

"It is a dangerous thing to try to interfere too much with our trade and I'm hopeful that this will be a very cautious process," Bernanke said.

As Bernanke sees it, Trump is filling his cabinet with appointment who hold conflicting trade opinions.

"I think what we're going to see is a lot of internal dissension, where different points of view are fighting it out within the administration and the president is sort of broadcasting to the public what he's thinking in the moment," Bernanke said. "So there's a lot of uncertainty."

As China’s yuan swings back into the global spotlight, it might seem like an odd time for authorities in Beijing to loosen their grip on the tightly-managed currency, Bloomberg reported.

Yet for a growing number of analysts and investors, the prospect of a freely floating yuan -- a Chinese exchange rate wholly determined by market forces -- is no longer a distant possibility. Advocates include a government-backed researcher and a former central bank adviser, while bond-market powerhouse Pacific Investment Management Co. says the chances of a free float are rising.

The risks of unshackling China’s currency are hard to ignore. It would almost certainly lead to a knee-jerk tumble, exacerbating capital outflows and sending shockwaves through global markets. Investors around the world took notice of the yuan’s elevated volatility last week, even as it paled in comparison to everyday swings in many developing-nation peers.

Free-float proponents say the long-term benefits for China outweigh the costs. A quick transition to a market-determined exchange rate would allow the country to preserve its foreign-currency reserves, re-assert control over domestic monetary policy and combat criticism from Trump that Communist Party apparatchiks are manipulating the currency.

“At the end of the day, what you have to accept is the value of the currency as it is right now isn’t appropriate,” said Luke Spajic, the head of emerging Asia portfolio management at Pimco, which oversees about $1.55 trillion and is calling for a mid- to high-single digit yuan depreciation over the next year. “Things need to change.”

(Newsmax wire services contributed to this report).

© 2017 Newsmax Finance. All rights reserved.

 
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Former Federal Reserve Chairman Ben Bernanke said President-elect Donald Trump's view on China and its currency doesn't "fit with reality."
bernanke, trump, china, yuan
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2017-49-17
Tuesday, 17 Jan 2017 08:49 AM
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