China has a surplus on its male account and deficit on the female account because the one-child policy has led to female infanticide on a large scale. This, say two Chinese economists Quingyuan Du and Shang-jin Wei from Columbia University, explains China's low exchange rate and high current account surplus.
“A rise in the sex ratio in China and several other economies, in theory, can simultaneously generate a decline in the real exchange rate and a rise in the current account surplus,” they say in a recent research paper, “Sex Ratios and Exchange Rates”(http://www.nber.org/papers/w16788.pdf) .
Some months ago the economists had written a paper,
This effectively lets China off the hook for its exchange rate policies.
The US and others have been blaming China's exchange rate policy of keeping the yuan undervalued for its huge trade surplus and $2-trillion foreign exchange reserves.
In their latest paper, the two economists have found that, empirically, in countries where there are more men milling about in the marriage market compared to women, the real exchange rate tends to be low.
Usually such factors as the Balassa-Samuelson effect, financial underdevelopment, dependence ratio, and exchange rate regime classifications have been seen as being responsible. But now they say sex-ratios will also have to be factored in.
Asked to comment on this finding, a senior Government economist said, “Now we know what the Chinese must do to appreciate the yuan.”
In the second paper quoted above, the authors said that “intensified competition in the marriage market can induce men to raise their savings rate, and produce a rise in the aggregate savings and current account surplus.”
They had also said that in a big country with an unbalanced sex ratio, as the sex ratio rises, “the world interest rate becomes lower.”
According to them, more than half of China's current account surplus (and the US current account deficit) is because the imbalance in its sex ratio. “This effect is economically significant if the biological desire to have a partner of the opposite sex is strong.”
The papers are silent on what the effect would be on the exchange rate and the current account surplus of an increase in same-sex partners.