the-board tariffs against Chinese imports, spurred by U.S. manufacturing interests that say China's currency peg means its imports are undervalued by as much as 40 percent and that tens of thousands of U.S. jobs have been lost as a result. Greenspan played down the idea that a higher-valued yuan would boost U.S. manufacturing activity and jobs, saying: "I am aware of no credible evidence that supports such a conclusion." Greenspan said a more flexible currency "would be helpful to China's economic stability" and hence to that of the global economy, given its rising importance as a world trading power. "The sooner the Chinese, in their own self-interest, move to a more flexible currency regime, perhaps leading other Asian currencies to become more flexible as well, the better for all participants in the global trading system," Greenspan said. He said China should adopt a flexible currency to defuse inflationary pressures that stem from managing the currency peg. China has built up huge reserves of foreign currency in that process, which it must "sterilize" through the issue if yuan-denominated debt, making its economy more liable to potential inflationary price rises. "That, so far as I can see, is something that as they observe the problem emerging and as they watch the underlying inflationary forces expand, will induce them, sooner rather than later, to move their exchange rate to a more sustainable level," Greenspan predicted.
