alan greenspan : china testimony of mr alan greenspan, chairman of the board of governors of the us federal reserve system, before the committee on finance, us senate, washington dc, 23 june 2005. * * * mr. chairman and members of the committee, i am pleased to be here today to offer my views on china ’ s trade and exchange rate regime. i would emphasize that the views i will express are my own and do not necessarily represent those of the federal reserve board. some observers mistakenly believe that a marked increase in the exchange value of the chinese renminbi ( rmb ) relative to the u. s. dollar would significantly increase manufacturing activity and jobs in the united states. i am aware of no credible evidence that supports such a conclusion. the enhanced integration of china into the world trading system is having a notable effect on asia ’ s trade with the rest of the world and on trade within asia. after having risen rapidly through the 1990s, u. s. imports from asia excluding china have flattened since 2000. this has occurred as production within asia has evolved, with the final stages of assembly and exporting to the united states and elsewhere becoming increasingly concentrated in china. as a consequence, because exports by country are recorded on a gross basis rather than as value added, the widening of the united states ’ bilateral trade deficit with china, measured gross, has largely been in lieu of wider deficits with other asian economies, including japan. measured by value added, our bilateral deficits with china would have been far less, and our bilateral deficits with other asian exporters would have been far more. accordingly, an increase in the exchange rate of the rmb, relative to the dollar, would likely redirect trade within asia, reversing to some extent the patterns that have emerged during the past half decade. however, a revaluation of the rmb would have limited consequences for overall u. s. imports as well as for u. s. exports that compete with chinese products in third markets. such a revaluation would affect chinese value added but not the dollar cost of intermediate goods imported into china from the rest of asia, which represents a significant share of the gross value of chinese exports to the united states and elsewhere. ( to the extent that exporters to china revalued as well, of course, the impact on overall asian exports would be somewhat greater. ) the broad tariff on chinese goods that has recently been proposed, should it be implemented

considerable progress in crisis management by establishing a robust framework for dealing with banks in financial difficulties. while they are not a direct response to the recent turmoil, we strongly welcome the european commission ’ s proposed changes to the crisis management and deposit insurance framework. in particular, we support expanding the scope of the resolution framework to ensure that the failure of small and medium - sized banks can be addressed in a more effective and harmonised way. at the same time, ensuring adequate resolution funding is critical to make resolution feasible for smaller banks. this includes using deposit guarantee schemes to help unlock access to the single resolution fund and introducing a single - tier depositor preference. the proposals form a coherent package which must be preserved in its entirety. we call on the co - legislators to adopt it swiftly, preferably during the current institutional cycle. the events of this spring have demonstrated the need for effective and agile crisis management frameworks for banks of all sizes. to complete the crisis management toolkit for large banks in the eu, we also need to make progress in other areas, such as liquidity in resolution and a backstop to the single resolution fund. the missing third pillar of banking union the large gap in our institutional framework is still the missing third pillar : the european deposit insurance scheme. as long as deposit insurance remains at the national level, the sovereign - bank nexus will continue to be a source of fragmentation in the banking union, as the level of confidence in the safety of bank deposits may differ across member states. in a crisis, we run the risk of deposit outflows towards other member states and non - banks, thereby exacerbating systemic liquidity stress. an incomplete banking union is a key vulnerability for the eu banking sector and hampers progress towards greater financial system integration. furthermore, as firms broaden their funding sources and diversify away from bank loans, there needs to be a greater focus on financing through marketable debt securities and equity instruments. this lies at the heart of the capital markets union ( cmu ) project. implications for the capital markets union completing the cmu is essential for three reasons. first, the cmu strengthens the resilience of the euro area economy through private risk - sharing. deep and integrated capital markets provide opportunities for effective risk - sharing. this is essential for financing the real economy and limiting fluctuations in economic activity. however, recent ecb analysis shows that, while euro area capital market integration has improved over the last 20 years, it remains rather modest. we