New | Beijing's monetary policy may have implications for Washington's path

As China pursues its own economic policies through a combination of lower interest rates and reduced reserve requirement ratios, there may be undesired cross-border spillovers that affect the United States - even as the Federal Reserve ponders its own monetary policy path.

China and the US, "the two 800-pound gorillas" of the global economy as they were recently described by Todd Stern, the US special envoy for climate change, are inextricably linked economically and monetarily.

During the global financial crisis, many emerging-market policymakers complained the US was exporting deflation as the Fed's quantitative easing policies led investors to seek better returns elsewhere, leaving the US dollar weaker.

The lower dollar, by definition, meant other currencies strengthened, and those stronger currencies could buy dollar-denominated imports, such as energy or US exports, more cheaply.

Although the US central bank would no doubt contest the deflation-exporting charge, the Fed was not simultaneously managing a mountain of foreign-currency-denominated reserves. Unlike the People's Bank of China.

Beijing's predicament is that its economic growth slowed to 7 per cent in the first quarter from 7.4 per cent last year.