A Frank Exchange

January 27, 2010 - They were the odd couple of Wednesday’s global macroeconomic policy debate.

Zhu Min, the deputy governor of the People’s Bank of China, and Barney Frank, the outspoken chairman of the House Financial Services Committee, shared a panel debating what risk factors might trigger the next global crisis.

The two men were on the same side in the debate, rebutting arguments put forward by leading academics and financiers that rising sovereign debt levels, overly aggressive regulation or rising protectionism could provoke a fresh calamity.

Asked to comment about the risks of protectionism, Zhu dutifully voiced the usual platitudes in favor of free trade before putting in a plug for China’s policy of fixing the value of the renminbi at a rate of just over 6.82 to the dollar. “It’s absolutely important to have RMB stability,” Zhu said “It’s good for China. It’s also good for the world.”

Frank’s immediate riposte to his supposed teammate? “It could be stable, but at a higher level,” he said, eliciting chuckles from the audience.

Many participants here worry that China’s currency stance risks exacerbating global imbalances, slowing economic recovery in the West and fueling asset bubbles in China. George Soros, the billionaire hedge fund investor, used a separate panel to urge Chinese authorities to allow the renminbi to appreciate “right now.” The Obama administration has so far eschewed attempts at jawboning, however, believing them to be counterproductive.

Zhu’s party line on currency policy and Frank’s gentle prod indicate that China and the U.S. continue to talk past each other on one of the biggest issues in global finance. If that doesn’t change, the risk of protectionism may become all too real.

A Frank Exchange
An odd couple shares the stage during Wednesday’s global macroeconomic policy debate.

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