Former U.S. Treasury Official Sobel Says China Should Allow Significant Yuan Appreciation

Foreign media reports indicate that Mark Sobel, former U.S. Treasury senior official and current U.S. chairman of the Official Monetary and Financial Institutions Forum (OMFIF), stated that the time is ripe for China to permit a substantial appreciation of the yuan, which would serve as a crucial step in reforming its economic growth model. Sobel noted that a real trade-weighted appreciation of the yuan, along with a stronger exchange rate against the U.S. dollar, would help boost domestic demand, increase real incomes, and send a strong signal of official support for domestic production of non-tradable goods and services, while also contributing to "anti-involution."

"Despite China's large current account surplus, the yuan faced depreciation pressures for most of last year. However, over the past two months, market sentiment has significantly improved due to a strong stock market rally, rising expectations of Fed rate cuts, and progress in U.S.-China trade talks," Sobel said.

Earlier, Goldman Sachs released a research report predicting that the yuan could rise to the key level of 7 against the U.S. dollar in the next six months, supported by ongoing trade negotiations, improved foreign capital inflows, and China's pro-growth policy environment.

Sobel argued that the yuan is currently severely undervalued, hindering China's reforms to correct its distorted growth model and exacerbating global trade tensions. While Chinese authorities may worry that yuan appreciation could intensify deflationary pressures, such negative effects could be fully offset through policy tools like fiscal transfers.