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Social development and protection

Time for the PRC to stop buying US Treasuries and start investing in its people

By . Posted January 12, 2012
Time for the PRC to stop buying US Treasuries and start investing in its people
The PRC needs to redirect money away from increasing its external reserves and toward spending on education, health care, and affordable housing to improve the well-being of its citizens. The PRC would benefit greatly from an exchange rate regime characterized by a multiple-currency, basket-based reference rate, and a reasonably wide band. Greater exchange rate flexibility would allow more decoupling between PRC and US interest rates, helping the People’s Bank of China (PBOC) to implement monetary policy that is best for the nation. The PRC’s exchange rate interventions to sustain the export-oriented thrust of the economy are not helpful to the nation for several reasons.