China has been striving in its phenomenal economical growth of the last decades. Today it is the largest holder of international official reserves; the second largest host country for foreign direct investments and the world’s third largest trading power. Rapid growth in the exports to the United States and European Union has resulted in large trade surpluses; these trade surpluses have been accused as being result of manipulation of the Chinese currency in order to maintain unfair trade advantages. In recent years China’s national currency (the Yuan or renmenbi) has been center of many controversies. Many countries, including the United States, believe that China is manipulating the value of its currency.
The International Monetary Fund’s Articles of Agreement stipulates, that each member shall: “avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain unfair competitive advantage over the other members” Has China complied to the terms of the IMF Agreement? Has China manipulated the exchange rate of the renmenbi? Are the trade surpluses results of an unfair trade advantage? These questions have been the center of many controversies in the recent years.
There are two main questions to be answered, is the renmenbi truly undervalued? And what would be best for China? I will try to answer these questions beginning with a brief history of the renmenbi and the current situation continuing with arguments confirming and disproving an undervalued renmenbi followed by the example of a country that has also faced international pressures to reevaluate their currencies, concluding then with my opinion.
History and Current Situation
From 200 BC until at least 1750, China wa ...