The Fed, the IMF and Governments all over the world say, that the Chinese Currency is undervalued. On the other side, there are people who don’t agree to that. What should we believe?
Jim O’Neill (head of global economic research and commodities and strategy research at Goldman Sachs) states that there is no undervaluation of the Renminbi compared to the US Dollar.
In fact, looking at chart 1, which shows the development of the exchange rate during the last five years, one can clearly see that the Renminbi rose compared to the US Dollar. And even in the last 3 months, where China was accused of manipulating their currency, the exchange rate did not fall or change very much at all (Chart 2).
Furthermore, he mentions that China’s imports rise by around 400 billion US$ per year and argues that even with a falling Dollar over the last couple of years the American trade deficit got bigger and bigger.
On the other hand, Mr. Bernanke (Chairman of the Federal Reserve) strongly criticizes China’s currency policy as “eventually inhibit[ing] growth around the world and risk[ing] financial instability at home.” Being of the same opinion as Mr. Bernanke, Mr. Dominique Strauss-Kahn (IMF Managing Director) states that the Chinese currency is substantially undervalued, but adds that other countries should not use this as an excuse to “postpone structural reforms that would restore competitiveness” [Reuters, 06/10/2010]
Which statement is true? In my opinion, the truth is somewhere in the middle. Fact is that in the current situation of the world economy every country somehow tries to protect their own economy, as all politicians are measured by the situation in their own country. Unemployment rises and government debts are huge, so every country tries to get back on track as fast as possible. The easiest way of earning more money is by exporting goods into other countries and a lower currency rate enhances those exports.
I will be happy to read your thoughts on that.