China is to blame for the currency tensions as the cheap yuan is contributing to global trade imbalances, says Nobel prize-winning economist Paul Krugman.
"China is behaving badly… The U.S. is loosening monetary policy with the side consequence of a weaker dollar, (while) China is actually pursuing policy tightening to offset the inflationary impacts of an artificially weak renminbi so… China is really the bad guy in this," the Princeton University professor told CNBC Thursday.
Despite Beijing's promise to allow a gradual appreciation of the yuan, Krugman saw "no sign of any honest intention on the part of the Chinese to actually move (on the yuan)."
"They allow the currency to rise a little bit just in advance of major meetings or legislative events, then depreciate it again, and then rinse and repeat," he observed.
Krugman said it’s hard to pin a fair value on the yuan, but as long as China continues to buy foreign currencies at the rate it has been, the currency remains undervalued.
"So I don't look for a numeric target for the exchange rate, I look for how much intervention is keeping the thing low," he said.
As for the need for further quantitative easing, Krugman maintains that flooding the economy with liquidity has helped to tide the global economy over the worst, and more would be needed to "really produce a full recovery."
For a contrarian view, check out Niall Ferguson's comments on why QE would not work.
