China could help restore int'l monetary system

Robert Mundell, known as the "Father of euro", said in Hong Kong on Wednesday that China could help restore international monetary system, and the stabilization of the dollar-euro exchange rate would help China avoid large problems.

Sharing his views on "Risk Factors in the World Economy and the Exchange Rate System" at the Hong Kong Polytechnic University (PolyU)'s 75th Anniversary Conference, Mundell said there are several problems of the present international monetary system, such as no universal unit of account, no international anchor for currency stabilization, wild swings of major exchange rates and wild swings of raw material prices.

He said these problems are all related to structural changes in the international monetary system: the mainstream of the world economy originally represented by the dollar has split into two parts as a result of the rise in importance of the euro.

He called for fixing the dollar-euro exchange rate, saying that as for China, the stabilization of the dollar-euro exchange rate would help China avoid the large problems that arise from instability with other currency areas, particularly the euro area.

Mundell, who won the Nobel Prize in 1999 for research which helped lay the foundation for Europe's single currency, said China could be made a part of the stabilization if it moved toward a convertible currency and cooperated in the adjustment mechanism.

He added that if the yuan were made convertible, a new and larger monetary area could be created side by side with the dollar and euro. This would require a collective monetary policy based on monetary stability of the Dollar-Euro-Yuan (DEY) Area.

The Columbia University professor said within a few years if not today, the DEY area would encompass half the world's output. "The DEY could become the central pivot for a restored international monetary system."

Themed "Stabilizing the World Economy", the conference is one of the major celebratory events of PolyU's 75th Anniversary, addressing some of the pressing issues which have implications for the stabilization of the world economy, including the recovery of major economies and emerging markets, the impacts of the European debt crisis, the problems and solutions of having an Asian currency, and the role of the world currency system.

In recognition of Mundell's significant contribution, he was conferred the Honorary Degree of Doctor of Business Administration by PolyU in 2009.