Nobel economics laureate Robert Mundell on Tuesday backed Beijing's go-slow approach to hiking the value of its currency as China's president visits Washington — its harshest critic on the issue.
Beijing has pledged to increase the flexibility of the yuan's exchange rate to make it a global currency rivalling the dollar, but critics have charged that China still unfairly undervalues the yuan to boost its own exports.
The thorny issue is sure to be high on the agenda when Hu Jintao meets President Barack Obama during his first official state visit to the United States this week, amid strained China-US relations.
Beijing has warned that a big upswing in the yuan's value would hammer the country's key export industries, sparking job losses for millions of workers and leading to social unrest.
Mundell, a leading authority on currencies and viewed by some as the "father" of the euro, on Tuesday defended Beijing's caution despite growing calls to quickly dismantle the yuan's de facto peg to the dollar.
"That's just a no-no for China. It would be devastating", the 1999 Nobel Prize winner in economics told a financial forum in Hong Kong.
"I don't think (China) should change its exchange rate".
If Beijing let the currency rise slowly — between two and three percent a year — the damage would be minimal, he added.
"It would not do any great harm at that rate," said Mundell, a professor at Columbia University in New York.
Since Beijing's pledge last June to let the yuan trade more freely against the dollar, it has gained about 3.6 percent against the US currency.
In the past month the pace of appreciation has accelerated, with the yuan gaining 1.1 percent as the United States pressed China for action.
But US Treasury Secretary Timothy Geithner said Friday the real appreciation of the yuan was more than 10 percent a year due to inflation.
In response to questions from the Wall Street Journal and Washington Post, Hu on Sunday described the world's dollar-led currency system as a "product of the past", and dismissed boosting the yuan's value as a solution to China's surging inflation rate.
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