How Appreciation of the Chinese currency can affect the Export Market

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TABLE OF CONTENTS

Chapter 1 Introduction............................................................................................................3 Motivation............................................................................................................................3 Research Question...............................................................................................................3 Other Objectives..................................................................................................................4 Outline of the present research............................................................................................4

Chapter 2 Background............................................................................................................5 Chinese exchange rate policy till 2005................................................................................5 Chinese exchange rate reform in 2005................................................................................6 Government economic policy for managing the exchange rate..........................................7 China's recent exchange situation.......................................................................................8

Chapter 3 Economic theory..................................................................................................10 Central bank monetary policy options...............................................................................10 The Bank of China gaining more independence regarding monetary policy....................12

Chapter 4 Literature Review................................................................................................14 Study of exchange rate issue..............................................................................................14 Ways to rectify exchange rate issues.................................................................................16

Chapter 5 Analysis.................................................................................................................17 Trade-off of China's exchange rate with other macroeconomic variables........................17 Association between inflation and other macroeconomic variables.................................18

Chapter 6 Conclusions...........................................................................................................21

List of References.........................................................................................................................23

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Chapter 1 I ntroduction

The Chinese government has long maintained that the Yuan is not ready to float until its

foreign exchange and financial markets are ready to manage the potentially large swings of

portfolio flows. However the international community does not agree with this and blames

China’s monetary policy for the huge trade imbalances in the world today. Despite the fact that

China deliberately, though under pressure, shifted from a fixed to a controlled floating currency

regime, many countries chiefly the United States and some countries in the European Union do

not think that the measures taken by Chinese government are enough and still consider the

currency to be grossly under valued. This is one of the hottest topics of debate in the field of

international finance. The following study analyzes the impact of possible appreciation in the

Chinese currency’s exchange rate on international trade.

Motivation

China’s currency regime and its monetary policy along with exchange rate policy is one

of the most important issues in international finance. While many countries argue that China

must not be so restrictive towards its currency policy, most economists also agree that it is

unwise for countries like China, where foreign exchange trading is inhibited, to plunge directly

into a floating exchange regime. In addition amongst the wide negative speculation that the

currency regime of China has faced, there has been a significant sized group that claims that the

so-called unfairness of China’s tight control and its effects on the trading imbalances of the

world have been grossly overrated. The present study seeks to analyze these two viewpoints so

as to evaluate the potential influence of appreciation of China’s currency on international trade.

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Research Question

The main question which the research seeks to answer is whether Chinese government’s

control of its currency is really responsible for the trade imbalances currently seen in the world.

Other Objectives

In addition to the primary research question, there are some other related questions which

the present research attempts to answer. First of all the present research aims to understand the

effect of the Chinese currency on other macroeconomic factors. This is important since these

factors form the basis of international trade and exports. In addition, the appreciation of the

currency might bring about inflation the effects of which also need to be analyzed.

Outline of the present research

The present research starts with the background of the study where the exchange policy

of China up till the year 2005 is described followed by the reform that was brought about in July

2005. The chapter also explains the nature of government control over the currency and ends

with a description of the current situation of the exchange rate. The next chapter is the Economic

theory where the functions of the Chinese central bank in controlling money supply and its role

in monetary policy are explained. This is followed by the literature review which looks at the

issues arising due to the exchange rate in terms of the studies conducted by the various

researchers in the past and the possible solutions to these issues. Once this theoretical framework

is established, the analysis part begins where the issues are reanalyzed using a review of the

studies conducted directly evaluating the effects of the currency and its exchange rate on various

economic factors. The chapter also analyzes the effect of inflation on the various microeconomic

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factors. The research ends with the conclusions drawn from the analysis.

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Chapter 2 Background

Chinese exchange rate policy till 2005

Most of the developed countries around the globe follow the policy of floating the currency

exchange rate. This is the case with the United States as well. However, China has been

intervening in the currency market to alter the rate its currency takes rather than let the market

forces determine the exchange rate. This trend continued from 1994 to July 21 2005 whereby

China continued to peg its currency against the US dollar at a rate of nearly 8.28 Yuan per US

dollar (Ferrington, 2006:64). The Central Bank of China managed this through participating in

the market, purchasing the required dollar denominated assets while printing more Yuan in order

to counter the trend brought about by surplus or deficiency of the Chinese currency in the

market. This has the impact of keeping the rate between the US dollar and the Yuan steady for an

extended period of time which would not have been the case in a freely operating exchange rate

market which was allowed to float as the change in economic variables would have led to

possible appreciation in the value of the Yuan over the years (Ferrington, 2006:64).

Many of the countries in East Asia experienced a financial crisis in the 1990s. At this point

in time, there was increasing pressure on China to shift to a free floating system by shelving the

controls that the central bank adopts. This would have let the Chinese currency depreciate in

value akin to the currencies of most of the East Asian economies. However, the Asian giant was

successful in avoiding the crisis without having to shift to a freely floating exchange rate system

(Goldstein, Lardy, 2008:244-245). This was a break from the trend in the region which saw

Malaysia, Hong Kong and majority of the Asian economies altering their exchange rate

mechanisms to managed float systems accompanied by a certain level of intervention in the

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market. Recent years however have seen substantially different events taking place. The US

dollar lost a lot of its strength which has seen calls for China to allow its currency to appreciate

in the international currency market. This was however something in China’s interests as the US

dollar was having a negative affect and China needed to maneuver so as to reposition its

currency, possibly pegged to a basket of various major currencies. This would reduce the risk

posed by possible fluctuations in the value of the US dollar in the international market. In July

2005, the Asian giant began to implement a policy change based on these considerations with the

changing economic conditions of the world (Tian, 2007:1978-1979).

Chinese exchange rate reform in 2005

As a result of the fixed exchange policy which China maintained, US politicians worked

together to force China to revaluate the Yuan and liberalize the exchange rate system. In early

2005, for instance, there emerged an aggressive stance from a section of politicians in the United

States who threatened to put up penalizing duties of 27.5 percent on imports from China if the

Asian giant did not reform its exchange rate, which was reflective of the perceptions in the US.

Succumbing to these pressures, as well as in its own interest, the Chinese government modified

its currency policy on 21st July 2005. It announced that the Yuan’s exchange rate would become

“adjustable based on market supply and demand with reference to the exchange rate movements

of currencies in a basket” (Ferrington, 2006:64). The People’s bank of china (PBOC) announced

that it had decided to strengthen the Yuan value by 2.1 percent changing the exchange rate of the

dollar to the Chinese currency from the long-standing 8.27 to 8.11. Moreover, it was later

informed that the Yuan would no longer be pegged to the US dollar alone, as it had been for the

past 10 years, but would float daily within a 0.3 percent band against a basket of major foreign

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currencies. The currencies included the US dollar, the euro, the Japanese Yen, the Korean won,

the Singapore dollar, the British pound, the Malaysian ringgit, the Russian ruble, the Australian

dollar, the Thai baht, and the Canadian dollar. The PBOC did not disclose the weighting given to

each of the foreign currencies which enables the PBOC to intervene in the exchange rate to

ensure that the exchange rate does not stray far from the RMB 8.11 to the US dollar. There were

hints given by the Chinese central authority that additional reforms may follow. However, this

plan was scrapped for the near future and additional revaluations were delayed for the time

being. Chinese government also hinted that further reforms would be made over time, but later

ruled out making further revaluations in the near future (Tian, 2007:1979).

Government economic policy for managing the exchange rate

The Chinese government has shown that it is to attempt to determine an exchange rate

through planning and to keep it contained within narrow defined margins over a long term.

While China initiated a program of slowly making its foreign exchange regime more flexible and

agreeing to allow incremental appreciations of its currency, these may not be substantial enough

to divert the pressure it is experiencing. Further exchange rates flexibility would solve a classical

conflict between the internal and external balance under the tight currency peg arrangements

(OECD, 2008:80).

Traditional textbook macroeconomic theory suggests that appreciations in the currency

are contractionary in the short term. A rise in the exchange rate increases prices of locally

produced goods relative to imported ones which lead to a decline in the exports of the country

and a rise in imports as the consumers now see their prices falling. This has the tendency to

reduce aggregate demand in the economy which is not good for the local industry. This concern

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would be dominant among the factors under consideration by the Chinese policy makers when

deliberating about possible appreciation in the currency. The rhetoric from the government is that

the Asian giant does not seek to have too large a surplus. However, the potential contractionary

impact of currency appreciation is still important as outlined by traditional macroeconomic

theory. In the case of China, it may have adverse affects on growth and employment which need

to be controlled if China needs to avoid going into recession akin to Japan’s woes in the 1990s.

Since the economy is in a state of transition to partial market economy through reform which

potentially sees a rise in unemployment, a high growth rate and sustained employment figures

are significant priorities in the eyes of the Chinese government (Itō, Rose, 2008: 72).

China's recent exchange situation

The reform brought about in July 2005 has not led to value of the renminbi being

determined by the forces of demand and supply. This is in opposition to what was declared by

the central bank. That would have resulted in currency appreciation and could potentially have

led to more flexibility in the currency which could possibly be a result of widening the band

established around the parity. This would be beneficial as it could result in a reduction in the

global trade imbalances and may allow the central authorities a greater level of flexibility in the

use of interest rate policy as a tool of macroeconomic management.

In 2007, the Chinese government further decided to allow the Chinese currency to flow

freely within a 0.5 percent band against the basket of major foreign currencies. By November

2007, US$1 was exchanged for RMB 7.46. This translated into a ten percent rise in value of the

Chinese currency following the reform in 2005 (Lo, Tian, 2009:379). The dynamics of the sub

9

prime crisis have raised concerns whether the prominent banks of the West or their regulators

comprehend the risk that surrounds dealing with derivatives, particularly when they have to be

put on the balance sheet. Luckily for China though, its tight control on its foreign exchange rates

has stemmed the use of these securitized products by financial institutions in the country.

As mentioned earlier, when the central bank intervenes in the foreign exchange market to

prevent a currency appreciation, it has to print money to buy dollars, which boosts domestic

liquidity. The US Federal Reserve’s recent interest rate cuts have made it even harder for

emerging economies, such as China to tighten policy. If China raises interest rates, the Asian

giant can pull capital inflows and the measures required by the central authorities to keep the

currency down leads to inflation further defeating the rate rise. An uptake of the interest rates

and the expectation of following appreciation in could have the potential of worsening the

inflation problem by taking in more capital. If it is freely floated, there is the danger of rapid over

valuation occurring. In fact, China’s central bank has made frequent policy changes raising

bank’s reserve requirements several times in 2008-2009 in an attempt to dry up excess liquidity.

However, interest rates have been left intact (Meng, 2009:137-140).

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Chapter 3 Economic theory

Central bank monetary policy options

The PBOC i.e. People’s Bank of China, which is a ministry-level agency under the

direction of the State Council, serves as the central bank of China. It has the important function

of making and then broadly implementing the monetary policy of the People’s Republic of China

helps to formulate as well as enforce compliance of the financial institutions with the policy of

the state (Pecht, 2006:39). Controlling the money supply is the traditional method used in a

market economy. However, in an economy in the midst of fundamental transitory changes like

the Asian giant is, the super-normal demand for money can be seen to come from diverse sources

such as growing marketization or real transactions coming as a result of specialization and

division of labor, the increased monetization of real assets such as land and real estate, and the

upturn in what are purely financial transactions. Thus, it turns out that the reason implementation

of money has seen ever present changes due to the quick change in institutional, organizational

and ownership structures, which present them in the guise of a growing level of monetization in

the economy (Xue, Tien-Tung, 1993:64). To combat all these factors and control the money

supply, the PBOC has brought into play two significant methods.

The first method is the money-multiplier method which used to increase money supply.

Here, the People’s Bank of China puts in high-powered money into the banking structure which

has the impact of leading to a rise in deposits and loans by the specialized banks. This has the

flow over affect of ultimately bringing an increase in total deposits or money supply that may be

several times the starting inflow of high-powered money into the economy. From the above it is

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clear that money that has the capability to unleash the money multiplier effect and thus bring

about an expansion in the money supply equal to several times itself, is called high-powered

money. Both a reduction in the required reserve ration and cash-loan ration will raise the money

supply multiplier, thereby increasing the central bank’s capability to control the expansion of the

money. The required reserve ratio is set by the central bank and its adjustment represents one of

the ways PBOC controls the money supply. While cash-load ratio is a measure to control money

supply yet its rise would reduce the money supplier multiplier and hence the ability of the central

bank to control the money supply. However, China does not yet possess a mature base of

financial institutions or a true capital market. China therefore cannot rely on open market

operations to regulate the money supply, which is also discussed below. Therefore, among the

relatively few options that the PBOC has, the best that can be utilized to control the financial

capital of the specialized banks is by adjusting direct lending to the specialized banks. This

indeed is the main instrument in the monetary policy for controlling money supply (Xue, Tien-

Tung, 1993:65-69).

Yet another method of controlling the monetary supply is by manipulating the monetary

base. PBOC does this by carrying out the open market operations (OMOs). The financial

instruments traded in open markets are government bonds, central government bills and financial

policy bills. China has a relatively well-developed money market consisting mainly of inter-bank

money market and the inter-government bond market where repurchasing and inverse

repurchasing to reduce liquidity are conducted. Reserve money can be controlled by changing

the quantity of the various entities. The most important component of the reserve money consists

of two parts: mandatory reserves and excess reserves. The excess reserves are made use of for

settlement with the range of private commercial banks in the accounts of the central bank. In

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China, the commonly targeted entities for change include loans to commercial banks i.e. re-

lending, government bonds, and now increasingly government bills (Eichengreen, Pak, Park,

Wyplosz, 2008:258).

The Bank of China gaining more independence regarding monetary policy

Chinese leaders have made greater efforts to reform the country’s financial system,

especially the banking system. However, the system suffers from major challenges too. Many

skeptics argue whether the central bank i.e. PBOC would be able to develop sufficient

independence to carry out its role effectively. According to the Central bank Law that came

about in 1995, the People’s Bank of China should have the task of independently implementing

monetary policies and being free from any interference. This has been severely undermined by a

range of factors though. For instance, the law stated that the PBOC exercised its power under the

State Council’s leadership. This implied that the bank was not the final authority on important

matters, and that it had to refer to the State Council for approval. Furthermore, the PBOC

continually lent to the industrial enterprises and a range of other commercial activities which

brought its independence into question (Zheng, 2004:128).

The PBOC is still firmly at the heart of the Chinese financial system, but its role has

greatly changed in present times. Its commercial banking activities have been transferred to the

State Owned Banks. Policy lending is now undertaken by the three policy banks. The

responsibility of supervising banks, which the People’s Bank of China took over with the growth

of various shareholding, city and regional banks, along with other financial institutions, were

removed and vested in April 2003 with the newly established China Banking Regulatory

Commission, brought into creation for the specific purpose of managing deposit financial

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institutions. It is this body that has the responsibility of now overseeing the reform and regulation

of banking allowing the People’s Bank of China to focus on monetary policy (Chiu, Lewis,

2006: 202-203).

Relatively speaking, by the Chinese standards, the PBOC has a high degree of

independence. While the State council is ultimately responsible for key monetary policy

decisions, PBOC still enjoys partial independence from other government levels, chiefly after the

April 2003 Act. State Council must approve the interest rate and exchange rate policy, but the

PBOC has the responsibility of deciding other monetary policies free from interference.

According to the People’s bank of China Act of 1995, the government cannot overdraft from the

PBOC. The central bank has thus used this independence to change gradually from direct to

indirect controls. The chief monetary policy target has been stability of the exchange rate and a

growth in the GDP (Chiu, Lewis, 2006: 203-204).

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Chapter 4 Literature Review

In mid-2005, the United States and the European Union began to step up the pressure on

China to revalue its currency, which they felt would help correct global imbalances. Two factors

come into play here: the actual role that the revaluation will play in correcting such imbalances,

and the domestic factors that may have motivated it. In any case correcting it is clear that two

important aspects of correcting global imbalances involve a slower growth in China with the help

of a revaluation in Yuan. However, there has been a heated debate as to the actual effect of these

two factors in correcting global especially US trade deficit imbalances by revaluing the Yuan.

The present chapter presents the study and opinions of various analysts and researchers on this

aspect.

Study of exchange rate issue

China has been an interesting study of earning management induced by regulation

because the Chinese economy is centralized, and numerous decisions are subject to examination

and approval by the regulators. Since the 1970s, Chinese policy makers have concentrated on

foreign exchange accumulation as a central macroeconomic measure. In fact the Asian giant

increasingly features as the most prominent Asian country with a currency that is overvalued,

allegedly exporters from China an unfair advantage in the international market for exports. Its

dominant trading partners, especially the United States and the European Union continuously

argue that the Chinese Yuan is overvalued by roughly 40%. This has been accompanied by

repeated calls for a revaluation of the Chinese currency or potential tariffs (Kurihara, 2007:97).

However, many researchers feel that the emphasis placed on the revaluation of Yuan is

excessive. First they point out that the effect of Yuan on US trade deficit stands at a maximum of

15

10% so even if the Yuan is revalued by 10%, the trade-weighted value of dollar would be

brought down by just 1%. Interestingly even if the rest of Asia followed China’s lead and

revalued its currencies, the dollar would decline by a mere 4%. In addition, analysts also point

out that the China’s exports have high import content. This means that a revaluation of the

Chinese currency would have only a limited impact (Contador, 2006:41). One analyst estimated

that the domestic value-added content of Chinese exports to the United States by foreign-

invested firms in China to be about 20%, while about 80% comes from the value of imported

parts that come into China for assembly. As a result, an appreciation of China’s currency would

be likely to have only a minor impact on China’s exports to the United States (Morrison,

Labonte, Sanford, 2006:50). Another study on this subject conducted by Asia Monitor in 2005,

reports that a 5% revaluation of the Chinese currency would reduce the Untied States current

account by a mere 0.03% of the GDP by 2007 and that a 20% revaluation would bring it down

by just 0.13% by that same year. The study further escalated the debate as to the wisdom of

revaluing the Yuan and its implications on the rest of the world. Some analysts plainly oppose

the notion that China and other Asian countries should revalue their currencies. They argue that

by pegging their currencies to their dollar, these nations have managed to keep their growth rates

high and that China’s competitiveness can better be explained by structural factors, particularly

the effective division of labor within Asia. Another study supporting this view emphasizes that

the reason for setting the exchange rate is not linked to trade relations with the United States.

Instead the policy has more to do with the use of the dollar in international pricing, since only

one fifth of the Asia’s exports go to that country (Contador, 2006:41-42).

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Ways to rectify exchange rate issues

Many analysts contend that the pace of China’s currency reforms and the level of the

Yuan’s appreciation against the dollar have been too slow. In fact some have introduced

legislation to put further pressure on China to speed up reforms. To counter this some analysts

chiefly based in the United States think that exchange rate adjustment would be a quick solution

to the trade imbalances. This might sound reasonable, but is not entirely true. As mentioned

earlier, the exchange rates do not correspond with trade deficit changes. Second the exchange

rate has very limited impact on trade, as was demonstrated earlier. Hence, it is of no use to let the

RMB appreciate by 20 percent or even more.

That is to say if the RMB were to revalue in a single step, for instance by 20 or even 30

percent, it might not be a good method. On the other hand, China has its own way of solving the

RMB exchange rate problem, and has already been taking measures since July 2005. In addition

to this, China needs to shift to consumption-driven economic growth instead of the current

export-driven type. This is crucial as China’s dependence on the US export market has gone up

from 10.1 percent in 1992 to 21 percent in 2006. Some other efforts which China can make

pertain to upgrading industry structure, encouraging its enterprises to invest in the United States

and other countries, and reducing some export initiatives. China should maintain its

diversification policies and can possibly bring into consideration the loosening of some controls

in market access beyond the commitments made to the World Trade Organization (Zhao, 2008:

113-114).

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Chapter 5 Analysis

Trade-off of China's exchange rate with other macroeconomic variables

The GDP of China is expected to grow at the rate of about 8% between 2005 and 2020,

which is lower than the potential growth rate i.e. 9.3%-9.5% since 1978. The table below shows

the forecasts for China’ economic growth trends in the period between 2005 and 2020 which

show that they are between 5.5 and 7.4 percent.

Fig 5.1 Forecasts for China’s GDP growth (% 2005-2020) (Lee, Kim, Woo, 2009:39)

Using exchange rate method with the GDP of China and the world as base, China’s GDP

and that of the world are 8 percent and 3 percent respectively. In 2005, China’s GDP made up of

5 percent of the world’s total. By 2020, China’s ratio is expected to rise to 10.2 percent.

However, if the exchange rate measure is used considering an appreciation of the RMB, it will be

3 percent when the economic growth is 8 percent. That is to say by 2020 the proportion of

China’s GDP will rise to 15.8 percent which is higher than the estimate given earlier without

considering any appreciation. The table below shows these estimates.

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Fig 5.2 China’s Economic Perspective (2005-2020) (Lee, Kim, Woo, 2009:41)

In addition, the table below also shows the calculation by the exchange rate method base

don World Bank database, of the contribution of China’s GDO increments to the world’s GDP

increment, which is expected to be almost one third in the period between 2006 and2020.

Fig 5.3 China’s contribution to the world GDP growth by period (Lee, Kim, Woo, 2009:43)

Association between inflation and other macroeconomic variables

On the policy front East Asian central banks generally tightened monetary conditions

from mid 2004 to the early part of 2006 to curb rising inflations. As a result the inflation

stabilized in 2007. However, headline inflation rates, which include fuels and food, have turned

up recently in some countries because of higher food price inflation. The stabilized inflation has

allowed central banks to keep policy rates stable and even ease in Asia and Thailand. The figure

below shows the consumer price inflation.

Fig 5.3 Inflation rate changes over the years ( World Bank, 2008:166 )

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Fiscal balances have improved and government debt has declined over the course of the

decade in most of the larger East Asian economies thanks to fiscal consolidation. External

conditions during 2007 remained sufficiently positive for surplus positions to widen across the

countries. Central banks in China, Indonesia, Malaysia and the Philippines and Thailand

continued to build up reserved as their current accounts remained in surplus. At the same time

the contribution of net exports to GDP growth 3 percent point, as exports expanded by 17.8

percent significantly outpacing the 15.3 percent growth in imports. This is shown in figure

below.

Fig 5.4East Asia and Pacific Forecast Summary ( World Bank, 2008:166 )

20

Chapter 6 Conclusions

It is clear from the analysis presented as well as the opinions of the various experts that

China should not exit to a free float yet. The group of such economists in fact includes those

economists who are extremely critical of China’s slowness in allowing its currency to appreciate.

One of the main reasons given is that a free float regime, which means full capital account

liberalization has to wait for a strengthening of China’s banking and financial system, which as is

seen in the discussion above is still a long way from being truly independent of the political

system. Hence, there is no easy or even clear solution for the China’s monetary and exchange

rate policy which as it is has major problems regarding its effectiveness. The first problem is the

conflicts between stabilizing exchange rate constraints and controlling overheating. The second

problem is the large number of frequently changing intermediate targets set by the Chinese

government, which have to be prioritized. And the third problem is the reluctance of China in

liberalizing its money and credit markets to benchmark interest rate equivalent to the Fed finds

rate or call rate.

Many economists also consider it mandatory that the exchange rate directly effects

growth rate and hence inflation. China so far has proved to be contrary to this idea. First of all

the declining growth of profitability has failed to slow the growth of investment by enterprises.

Secondly, the net exports have grown rapidly despite the revaluation of RMB. And thirdly, while

the growth rate has been rising persistently, inflation has shown no signs of accelerating. The

first two reasons can be attributed to the fact that such surges are temporary and China cannot

sustain both in the long term – a fact that has been proved post the worldwide crunch following

the US subprime crisis. As far as the growth and inflation is concerned, expert believe that the

21

relationship between growth and inflation is changing. That is to say the rise and fall of inflation

was too random for it to be related to the growth rate. This might not always be a good thing

either because if the growth rate of money supply is too high, even through the inflation rate is

not high, something must be wrong.

The right approach to take in this case by China would be to strike a balance between

monetary policy and fiscal policy. Experts consider the right combination to be a tight monetary

policy combined with a loose fiscal policy. This is important because a tight monetary policy

might cause an excessive slow down in growth rate, which is a cause for concern especially in

the volatile economy in the present times. A loose, that is to say expansionary fiscal policy by

Chinese government might be just what would be required to counter this effect. Another fact

that cannot be ignored is the pressure of appreciation of the RMB. Granted that many economists

do not believe that this is the cause of the world problems, yet a tighter monetary policy as well

as higher interest rates may naturally lead to such a pressure. Inflationary pressures in China

continue to remain acute despite the measures taken so far to contain them. In fact PBOC

repeated increase in policy rates is a cause for concern even though the rates still remain at low

levels. Even though the government has tried to curb the domestic demand growth, the inflation

measured by the consumer price index still remains at 6.25 percent.

Hence, looking at all the reasons above, it is fair to assume that China would be forced to

let its exchange rate appreciate more rapidly in effective terms and that such as appreciation

would be a favorable condition for the country itself, even if the interest of the rest of the world

are not considered.

22

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