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July 30, 2005
Mundell and China

This week the Bank of China clarified the world's understanding of its new monetary regime. Its small 2-percent revaluation of the yuan vis-a-vis the U.S. dollar, the BoC said, "does not in the least imply an initial move which warrants further actions in the future." Bottom line: we should not expect significant changes in the value of the yuan. This confirms my view that China is shrewdly dousing a political tinderbox, not fundamentally altering its successful sound money principles and policies.

Our friend John Rutledge, who was initially worried about China's move, now believes 1999 economics Nobelist Robert Mundell may be closely advising the Chinese, and Rutledge is relieved.

I agree there are lots of reasons to believe Mundell is working closely behind the scenes. Mundell has offered an unusually large number of public comments on the yuan-dollar question over the last few years, and last autumn China established the Robert Mundell University for International Entrepreneurship in the Zhongguancun science and technology zone of Beijing.

If only American policymakers would listen as closely to Professor Mundell.

-Bret Swanson

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