2. Is the renminbi overvalued or undervalued?
Given the present excess of Chinese savings (public and private) over investment (also public and private), and the relatively low inflation rate, it may be just right. If the savings excess were eliminated (so that the current account surplus disappeared), the real exchange rate would need to appreciate, and then the present nominal exchange rate (the renminbi) would be undervalued.
People who believe that the renminbi is undervalued really believe that Chinese savings are too high or perhaps believe that world interest rates are too low. Or they are just concerned with the interests of countries and firms that compete with Chinese exports.
What would happen to the renminbi if intervention by the Bank of China in the foreign exchange market were ended? To answer this, one would need to know also what happens to Chinese controls on capital outflow and to savings and investment.
3. What should be the role of the IMF/World Bank?
The IMF should advise countries on macroeconomic policies (in their own interest); rescue countries in trouble when the private capital market does not – but subject to reasonable conditionality; and provide information and analysis (as it does now, very effectively). But I am sceptical about policy co-ordination beyond information provision.
The World Bank’s role should be to help poor and emerging-market countries; provide research on economic development; assist countries in recovery from civil wars and other disturbances; and play a role (yet to be defined) on international externality issues, notably but not exclusively climate change. I regard the World Bank as a very important organisation, both actually and potentially. But it has suffered from serious leadership problems. This needs to change.
4. Are sovereign wealth funds to be applauded or feared?
From the point of view of China, its proposed fund is to be applauded, in preference to putting all its reserves into US treasuries. I do not fear the Norwegian, Australian or Singaporean funds, and indeed applaud them. I suppose the issues are the same as in “do we applaud or fear multinationals (or just large corporations), especially when they own newspapers or TV stations?” It all depends.
5. Are emerging market crises a thing of the past?
Probably not. We should always be prepared – one reason for needing the IMF. But, no doubt, governments will have learnt from the Asian crisis.