from Follow the Money

Gunboat diplomacy isn’t what it used to be …

September 16, 2006

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Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

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Alan Beattie.

In any case, here is last year's annual IMF health-check on China: "The staff reiterated the need for greater exchange rate flexibility in China, emphasising that an early move is warranted . . . staff also raised concerns about rising protectionist pressures and the growing possibility of a disorderly resolution of global external imbalances." By the standards of the fund's politely opaque language, this is equivalent to anchoring gunboats at the mouth of Shanghai harbour.

I actually don’t think calling for a bit more flexibility (At least enough to keep the RMB from depreciating along with the dollar) is at all equivalent of anchoring gunboats in the harbour.    Gunboats can actually do something if you don’t do what the captain of the gunboat wants.  The IMF can not.   

The real analogy to gunboats comes when the IMF tells a country that is running down its reserves that it won’t be able to borrow from the fund without a bit more flexibility …  The IMF doesn't have that kind of leverage over country's adding to their reserves.   Particularly countries that already have way more reserves than they need to be quite sure that that they never will need to borrow from the Fund.   Which is Beattie's real point.

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