Beijing needs to strengthen its currency, the yuan, for the better of the Chinese and the global economy, but doing so isn't a silver bullet that will rid the world of its ills, says World Bank President Robert Zoellick.
"While I believe the Chinese should appreciate their currency over time, that change will not be a silver bullet," Zoellick tells Newsweek.
"China needs structural changes to increase domestic demand through increasing consumption and lowering savings."
The United States has constantly accused China of keeping its currency artificially cheap in order to gain unfair advantages in the global trade arena.
While senior government officials, including Vice President Joe Biden, have said they expect China to let the currency strengthen, others say it won't happen overnight.
"China still closely manages the level of its exchange rate and restricts the ability of capital to move in and out of the country," says Treasury Assistant Secretary Charles Collyns, according to Reuters.
"These policies have the effect of keeping the Chinese currency substantially undervalued."
In the meantime, the United States needs its private sector to do its part and start investing in job-creating projects, Zoellick says.
"The U.S. needs a careful 'handoff' to demand led by the private sector. Many bigger U.S. companies are profitable, productive, and have available cash," Zoellick says.
"With the right policies on government spending, taxes, regulations, trade, and longer-term structural growth, these companies will invest, create more private sector jobs, and enhance America's competitive strength."
He also warns the biggest challenge facing most developing countries is the risk of a big boost in food prices. "Food accounts for a large and increasingly volatile share of family budgets for poor and urban families. When prices of staple foods soar, poor countries and poor people bear the brunt," he said.
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