An upward revaluation of the Chinese yuan would do little or nothing to reduce the United States' ballooning US$645 billion overdraft with the rest of the world, two of the world's most eminent economists have told financiers. The government deficit and a low household savings rate in the US were to blame for the country's growing current-account deficit, said Raghuram Rajan, the economic counsellor and research director at the International Monetary Fund. His view was backed by Nobel economics laureate and former Clinton cabinet member Joseph Stiglitz. 'Revaluation of the yuan is not going to lead to a large effect on the [US] trade deficit,' Professor Stiglitz said, adding yuan appreciation could be both economically and socially damaging for China. Speaking at an investment conference hosted by investment bank Credit Suisse First Boston yesterday, both economists were bullish on Asia's outlook. Pre-empting the IMF's spring economic forecasts, due out next month, Professor Rajan forecast growth this year of 7.5 per cent for the region and 8.5 per cent for the Chinese economy. The economists' argument that China's fixed exchange rate does not contribute to the trade and current-account deficits in the US challenges the view held by most of their colleagues. Some lobbyists in Washington have called for a 25 per cent upward revaluation of the yuan, charging that by keeping the unit artificially low, China risks destabilising the global economy. Professor Rajan argued the recent growth of the US current-account deficit to almost US$2 billion a day was the result of a fall in its national savings rate since 2000 as the government and consumers had borrowed to finance spending. China was 'only peripherally' involved, he said. Professor Stiglitz, a former chief economist at the World Bank who was awarded the Nobel prize for economics in 2001, said that far from solving the world's economic problems, a rise in the yuan's value could hurt the Chinese economy. He pointed out that as a big holder of US dollar assets, China would suffer huge capital losses from any appreciation of the yuan. A revaluation could also cut the yuan price of imported agricultural products, further harming China's already uncompetitive farmers. He acknowledged China's policy of buying US dollars and selling yuan to maintain the fixed exchange rate risked encouraging speculation and stoking inflation. But he maintained administrative measures were likely to prove more effective than a revaluation in cooling domestic overheating with fewer disruptive side-effects. Restricting land access and introducing a capital gains tax on property sales would go a long way to quelling speculation in the real estate market, he suggested. Meanwhile, imposing export duties across a range of sectors would raise revenue for the government and discourage foreign-exchange speculators by sending a clear signal to the market that no revaluation was intended any time soon. Professor Rajan said China would have to adopt a more flexible exchange-rate regime in the long run, however, if it was to allocate resources more efficiently.