Latin America’s Education Deficit
China’s decision to end its decade-old policy of pegging the Yuan to the dollar has been greeted in Latin America with enthusiasm and optimism. It is argued across the continent that a more flexible exchange rate for the Yuan will reduce China’s unfair advantage in international markets. This, we are told, will make Latin America’s exports of manufactured goods more competitive internationally.
But this optimism is misplaced. Despite the announced reforms, it is unlikely that there will be any significant exchange-rate flexibility in China’s currency. Indeed, China’s rulers have already stated that the new exchange-rate system will aim at maintaining currency stability. Its policy is tailored after that of Singapore, which has avoided large currency fluctuations – and has maintained a significantly more competitive exchange rate during the last three years than all of Latin America’s countries.
This means that in order to compete successfully with China, Latin American countries will need to increase productivity growth. Unfortunately, the continent is not well positioned for these challenges.