China Tells

It is never easy to find out the truth, including the proper value of RMB. During the last 6 months, most currencies of emerging economies have appreciated against USD except RMB. Such a fact has aroused international pressure from China’s trading partners pushing China government to reconsider the pegging policy of RMB to USD (See Article from Chinatells). As a matter of fact, some currency (eg., Brz real) has appreciated more than 30% against USD. With RMB de-facto pegged to USD, in fact RMB has been depreciated against these currencies as well, giving China an added advantage for its export in the interantational trade competition. Therefore, to make the game ‘fair’, value of RMB shall be appreciated to the similar level as other EM currencies.

The argument goes without any problem so far. However, if we expand the time span a little bit, from Mar-Oct 09 to Aug08-Oct09 (starting from when the financial crisis unfolded), we see a totally different picture. Surprisingly, RMB is the strongest currency during that period (FX unchanged), while most other EM currencies have depreciated against USD more or less. An obvious conclusion from such comparison is that RMB is not over or under valued against any other currency, it is the de facto most stable currency among all. The recent appreciation of other currencies, such as Brz Real or Korean Won, is just an adjustment to their depreciation during an earlier period. From that perspective, the so called ‘free flotation’ only adds volatility to the other currencies, while not giving any benefit in terms of stablizing trade or keeping a proper value. Following this logic, there is a good point from China’s government to fix the RMB rate to USD, period.

人民币汇率一直是国际争论的主要话题之一。中国政府经常受到国际压力要求重估人民币，或者放弃对美元的挂钩。该压力在最近6个月达到顶点，主要原因是美元在最近6个月连续下滑，造成其他主要货币对美元都有或多或少的升值，而人民币岿然不动，自然引来怨言。但是如果以一个更加长远的时间纬度来看这个问题，就会发现从08年8月份以来，人民币其实是在所有新兴经济货币中升值最多的货币。所有在最近六个月升值最凶的货币，也是在过去1年中贬值最厉害的货币。明白了这点，也就明白了为什么人民币保持目前汇率是最合理的方案的原因。