How much does the yuan need to appreciate in order to solve the US current-account deficit problem? It seemed inevitable that this question would be put to Glenn Hubbard, the dean of Columbia Business School, during a Credit Suisse First Boston Asia investment conference yesterday. But the answer turned out to be less predictable, considering how the US administration has been pushing for a stronger Chinese currency in recent years. 'There have been a lot of discussions about exchange rates, particularly against China, but to me that is not an issue. The issue is: 'How do we encourage other regions in the world to grow faster?'' he said. Growth is important because one of the keys to a smooth reduction in the economic imbalances - in the US and globally - is to improve the domestic demand in countries outside the US, he said. Mr Hubbard noted that one reason for the record US current account deficit - US$665.9 billion for last year - was that the US economy was growing very rapidly relative to most of its trading partners. 'The US has a big role to play by encouraging trade,' added the former chairman of the US council of economic advisers, who advised President George W. Bush on economic policy and international finance. With regard to China, Mr Hubbard said the discussion needed to centre foremost on reforming the domestic financial system. 'Almost 40 per cent of China's gross domestic product is being saved, but a good chunk of that is being wasted in an inefficient financial system,' he said. Financial reform should also come before any artificial revaluation of the yuan, he said. The academic said it was almost impossible to know the new equilibrium for the dollar/yuan exchange rate, and that rather than arbitrarily picking a number it would be better to make the financial system more efficient first and let the yuan adjust to that. He also pointed out that the US needed to improve its national savings rate through reform of its retirement programmes and a less generous tax system. According to Mr Hubbard, most prototypes for tax reform suggested by congress, especially a move to a consumption tax, would raise the national savings rate considerably and at the same time encourage a slight shift away from domestic consumption and towards investment. Mr Hubbard said that he expected the US current account deficit to get larger in the near-term, but added that he was not concerned that it would cause the system to 'burst'.