What if you do raise yuan's value
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In an earlier interview, Song has accused the US of being "the biggest currency manipulator". He argues that as a country which issues a global settlement currency, the US hasn't performed well and should take full responsibility for its failure. "It's akin to the US opening the sluice gates in the upper reaches of a river to resolve its financial crisis and leaving the countries downstream, including China, to fight the floods." To its advantage, "the countries downstream have always been passive and defensive on the issue".
Song says that forced or improper revaluation of the yuan could make China fall into the trap that Japan was once a victim of. A drastic revaluation may seriously reduce the existing yuan's domestic purchasing power and cause prices of domestic asset to skyrocket. The sectors to be worst hit by the price rise would be those doing business on credits and loans, such as the real estate industry. Song fears that could lead to economic as well as social chaos. Sky-high housing prices are already a top public concern in China. If the prices were to rise higher because of the yuan's revaluation they might spread public discontentment further and aggravate the social contradictions.
A revalued yuan may be able to check inflation, but the benefits can only be realized over a long time. In contrast, the yuan's revaluation would be equal to giving great momentum to speculators to cash out hot money which in turn would pose an immediate danger to the Chinese economy.
Song criticizes people who only talk about the advantages of the yuan's revaluation. He says their view is one-sided and they fail to see the whole for the part. The benefits to be gained from the yuan's revaluation can hardly offset the great damage it could cause to China. But he doesn't agree with the blind patriots, either, who compulsively disagree with whatever our adversaries say. They have to know that the game among big powers is complicated. He suggests instead that China consider adjusting the yuan's exchange rate as part of its overall national strategy.
To cope with US's pressure on the yuan's revaluation, China has to devise an optimal strategy at the bargaining table. "As the biggest creditor of the US, China deserves a meaningful negotiation." And the most important thing is to find out the real strategic intents and needs of each other.
On the currency policy, Song agrees the yuan's exchange rate should be basically stable on an adaptive and equilibrium basis. It would be a safe strategy for China at present, especially because the global economy hasn't yet recovered fully.
Once the world economy breaks out of crisis completely, China could consider raising its currency's value steadily but in a way that doesn't hurt its economy, because the yuan's revaluation is a precondition for the internationalization of the currency.
Though Song wants the yuan to become an international currency, he says its revaluation should be slow and unpredictable to preempt any serious harm that it could cause to the Chinese economy.
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