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World Reaction
Special> QE2: Helpful or Harmful?> World Reaction
UPDATED: November 19, 2010
Fed stimulus might have a negative impact on the global economy

The U.S. Federal Reserve's (Fed's) second round of quantitative easing, or QE2, was "not likely" to benefit the global economy, the Chinese central bank governor said Friday.

Zhou Xiaochuan, governor of the People's Bank of China, made the remarks while delivering a speech at an economic forum in Beijing.

The Fed announced November 3 its plan to purchase $600 billion worth of government bonds aimed to revive the sluggish U.S. economy.

For the United States, the Fed's move might be "a good choice" as it could help boost employment and maintain a low inflation rate domestically, Zhou said.

However, it might have a negative impact on the global economy, he added, as the move could further weaken the U.S. dollar and bring a flood of liquidity to the global economy, especially to emerging economies.

As an international reserve currency, the U.S. dollar is widely used in international commodity trade, capital circulation and financial transactions, therefore, a weaker dollar would definitely impact on the global market, Zhou said.

"The question comes down to whether there is a problem with the international monetary system, when there is a conflict between the international role and the domestic role of the U.S. dollar," he said.

According to Zhou, Chinese regulators would work to prevent abnormal capital inflows by bolstering foreign exchange controls and maintaining overall liquidity at a proper level.

The Chinese government would maintain a balanced economy at a macro-level and strive to prevent "hot money" inflows. But capital inflows cannot be completely controlled, he said.

As to solving trade imbalances, he said the exchange rate reform was only one way to tackle the issue.

It would only work if there was also an adjustment in wages, resource prices and export tax rebates, as well as an increase in domestic demand, Zhou said.

(Xinhua News Agency November 5, 2010)

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