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China will face more pressure to let the yuan rise ahead of U.S. congressional elections next year, as the dollar is pushed down by a current account deficit and low savings rates, the head of Morgan Stanley Asia said.
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"There will be congressional issues aimed at fixing the U.S.-China trade balance through currency realignment," chairman of Morgan Stanley Asia, Stephen Roach, told a news conference on Tuesday.
He added that monetary policy moves by smaller economies, including South Korea, to curb their strengthening currencies would give way to market forces.
"There will be further downward pressure on the U.S. dollar in the next 2-3 years."
The U.S. trade deficit with China stood at $143.7 billion for the year through August, U.S. data shows, making China easily the largest single contributor to its trade gap with the rest of the world.
The United States wants China to do more to shift its economic focus to its own consumers rather than exports, which would involve allowing the yuan to rise more rapidly and building a stronger social safety net.
Roach said China would be forced to adopt a significant pro-consumption policy, aimed at building adequate social safety nets such as private pensions, medical and unemployment insurance to reduce its dependence on exports-led economy.
China has in effect re-pegged the yuan around 6.83 per dollar since the financial crisis intensified in the middle of 2008 to help its export industries and to cement financial stability.
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