“If they were to accelerate, not a great deal, but some, it would be quite helpful for the Chinese economy,” Greenspan said. Efforts to control the value of China’s currency have made “invariable problems of imbalance” in financial markets “more difficult to deal with than they need be.”

The flood of cash from a record US$177.5 billion trade surplus has made it difficult for China’s government to quell investment, which it’s trying to do to prevent the world’s fastest-growing major economy from overheating. The trade surplus has also led U.S. lawmakers to accuse China of giving its exporters an unfair advantage by artificially keeping the yuan undervalued.

“It is difficult to argue that the yuan’s appreciation has had a deleterious impact on real exports or GDP growth,” Stephen Jen, head of global currency research at Morgan Stanley in London, wrote in a research note dated Jan. 25.

China’s economic growth accelerated to 10.7 percent in 2006, the fastest in 11 years, the National Bureau of Statistics said Jan. 25. Consumer prices rose 2.8 percent in December, the most in almost two years, it said.

The trade surplus swelled 74 percent, boosting the country’s foreign reserves to more than US$1 trillion. The surplus has soared almost eightfold since 2001, when China joined the World Trade Organization.

Greenspan said he has told China’s Central Bank Governor Zhou Xiaochuan that the world’s fourth-largest economy would benefit if the value of the yuan were allowed to appreciate faster against other currencies.

“The accumulation of foreign assets required to hold exchange rates in place or gradually lift it is not something easy to handle monetarily, nor something that maintains a reasonable good balance in a domestic financial system,” Greenspan said.

Efforts to control the yuan’s rise may also make it more difficult for China to become an exporter of more expensive, high-value products, instead of a center for low-cost manufacturing, Greenspan said.

“China would be better off with its exchange rate moving a bit faster,” he said. “I’m not at all concerned that instabilities will occur if the pace is picked up.”

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