RMB revaluation can't solve U.S. trade balance

Revaluation of the Chinese currency will not help solve the U.S. trade deficit problem, a renowned U.S. economist said here on Thursday.

During a roundtable held in New York, Allan Meltzer, economist and professor of Political Economy at Carnegie Mellon University, told Xinhua that the U.S. current account balance is "mainly a problem of saving and investment in the United States."

"It's all saving rate. Particularly it's large budge deficit," he said. "So the Chinese revaluation of the yuan will not make a great difference to that trade balance. If the problem is going to be solved, it's mainly going to be solved by what we do, not what we get other people to do."

Asked about U.S.-China trade, Meltzer said he agreed with the Chinese position, which is that the United States will have to import cheap products from other developing countries if it restricts imports from China.

"If we were to reduce imports of textiles by any means, whether by import controls against China, or by appreciation of the Chinese currency, or any other way, the imports will come from other places," he used the textile industry as an example.

"The textile industry will not come back as an important industry here," he added.

The U.S. Treasury Department earlier this month delayed a report on whether to pinpoint China as currency manipulator, which China is strongly against. The White House said it will make the decision a couple of months later, during which period several rounds of talks may take place between the two countries.

Meltzer said that the United States is losing its role as world leader with less support from Europe in military actions, rising trade barriers and worsening financial stability.

"The United States, for various reasons, is not in the position to exercise leadership that it did in first fifty years of post-war era," he said.

Meltzer said changes in three areas have caused the decline of U.S. leadership. Firstly, several decades without major wars had provided a peaceful environment for economic growth, but in recent years Europe has distanced them from the United States on a lot of issues including war in Afghanistan.

"(America's) role as the police of the world, the role to maintain world peace, not without mistakes, is diminishing," he said.

Another weakening element is trade, which is "not as vibrant and strong as it was," Meltzer pointed out. "Trade restrictions are slowly growing all over the world, that is the threat to the main driver of growth, improvement of living standards."

Meltzer said the United States did not do a spectacular job in financial stability, and currently both the European Union and the United States have too much debt.

Recognized as one of the foremost expert and historian on the Federal Reserve, Meltzer said financial regulation form would be much more effective if it provides incentives to the regulated.

To tackle the "too-big-to-fail" problem, for example, he proposed to set a limit, say 10 billion U.S. dollars; and beyond this minimum size, for one percent the bank increases its size, it should increase capital reserve accordingly.