Appreciation of Renminbi

I think China Renminbi appreciation can help solve the world economy problem a lot. I think the world economy problem is caused by economy imbalance between China and advanced countries.

According to theory, countries who are running account surplus, their currency need to appreciate. Countries who are running account deficit, their currency have to depreciate. Considering that, USD need to be depreciate against Renminbi, Euro need to be depreciate against Renminbi. Obviously, both USD and Euro depreciation rate against Renminbi are too slow. China artificially does it by selling their currency and lend to those advance countries to spend. Hence, because of the inflow of huge money, the lending rate become very low. This induce people in advance countries to spend beyond their mean.

Now that they have borrow too much. Their financial institutions have been very cautious to lend money now, because although the inflow is huge, their leverage is at all time high too. Because of this financial distress, they need to begin their long painful deleveraging process. In other word, their aggregate demand has reach limit.

China has the biggest population in the world. And they have the highest saving rate in the world. As long as Renminbi appreciate, and they feel richer and spend more, I believe they can offset the drop of demand of advance countries because of currency depreciation and deleveraging process. More over, this can restore competiveness of advance countries and solve global imbalance problem, which is the root cause of this economy turmoil.