A bill is being considered by the U.S. legislators to force the Chinese authorities to raise the value of the yuan, the Chinese national currency.
Eswar Prasad, a senior professor of trade policy at Cornell University, warned the legislators that the present bill could become more harmful to the relationship between the two countries than the legislators could expect. Taking in consideration, that prof. Prasad has had much experience in this sphere while working as a China trade expert and as an economist at the International Monetary Fund, one could say that the legislators should count with what the professor says.
The professor mentioned that it was unlikely for this bill to influence on a large scale the problems the legislators are trying to avoid, such as the U.S. trade deficit and instabilities of the Chinese economy. He added that this measure could also have an international impact, by brining instability in the global economy.
Prof. Prasad said that the U.S. should rather work some ways to collaborate with China to transform its economy, instead of 'forcing them' change something.
This strategy could be more effective, Prasad said, because it could improve the macroeconomic situation in China and would relief the international tension.
The reason for issuing the bill under discussion was the fact that the Chinese yuan is undervalued by about 40% and this fact advantages the Chinese manufacturers over international firms in terms of pricing. Thus two Democrats and two Republicans wanted to force a raise of the Chinese national currency, yuan, against the U.S. dollar.
The bill will need a two thirds support both in the House of Representatives and the Senate, in order it would not be vetoed in the future by the President Bush.
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Eswar Prasad, a professor at the trade policy from the Cornell University, warns the United States legislators, that their bill could poison the relationship between USA and China.

This warning was given regarding the U.S. bill, which is meant to force China to raise the value of its national currency yuan. Currently yuan has a value, which is about 40% lower than it should be, as stated by the legislators, which gives the Chinese trading companies a huge advantage on the international trading ground. 

Professor Prasad, who was a China trade expert  and an economist at the International Monetary Fund until late last year, said that this bill would not have a long lasting effect and would not influence the problems the legislators are trying to avoid. 

The opinion of the China trade specialist was that the USA should try to collaborate with Chinese officials in order to fix the problem of U.S. trade deficit and the current instabilities in the Chinese economy. The strategy to force the Chinese Government to do something would only worsen the relationship between the two countries.

The expert's opinion was it was more important to concentrate on the question what framework of the monetary policy could substitute the fixed exchange rate of the Chinese currency, which helped China in anchoring the inflation expectations.

Mr. Prasad added that the best way to stabilize the Chinese economy would be to couple an inflation objective with a flexibility of exchange rate.

The bill needs two thirds of the votes both in the U.S. House of Representatives and in the Senate, in order President George W. Bush would not have the possibility to veto the bill.