As long as countries strive to reallocate aggregate demand in their own favour, disputes will arise regarding the degree to which currency values are 'fair'. This column argues that the Penn effect – the observation that the price level is higher in countries with higher per capita income – may not be a reliable method to discern the fair value of a currency. Different specifications and different datasets lead to different estimates of the degree of misalignment, for example for the Chinese renminbi.
Yin-Wong Cheung, Menzie Chinn, Xin Nong, 15 September 2016
Hiro Ito, Masahiro Kawai, 24 June 2016
China’s authorities have been promoting the renminbi as an international currency for international trade, investment, and finance. This column examines the experiences of the dollar, yen, and deutschmark from the 1970s to the 1990s. As long as China’s neighbouring economies keep using the dollar for international trade and financial activities, the rise of the renminbi as a trade invoicing currency may be as fast as the rise of China itself.
Alex Cukierman, 07 January 2015
The Global Crisis has increased the importance of the renminbi as an international currency. This column describes how the status of the renminbi has changed relative to that of the dollar and the euro. It also discusses what their future as future currencies would be. The author suggests that within 10 years, the renminbi would be at least at par with the dollar as a regional trade settlement currency in East Asia. It is also likely to become a close second to the euro as a world reserve currency.
Willem Thorbecke, 06 November 2014
Foreign reserve accumulation by China and other east Asian countries has been a controversial way to boost exports. This column argues that it is not even in their own national interests. The policy has been ineffective in maintaining China’s ordinary trade surplus, while its processing trade surplus continues to rely on devaluation in countries further up the supply chain. Foreign reserve divestment would increase purchasing power in east Asian countries, free up government revenue, and be innocuous to export competition if properly coordinated.
Arvind Subramanian, Martin Kessler, 27 October 2012
As China becomes ever more important in the global economy, will its currency take on an international role? This column argues that in some sense, this is already happening – an increasing number of emerging-market currencies seem to track (co-move with) the renminbi – and the trend is set to continue.
Eswar Prasad, Lei (Sandy) Ye, 16 February 2012
Is China’s currency destined to become the dominant global reserve currency? This column argues that despite not yet having a flexible exchange rate or open capital account, China’s government is pursuing ‘liberalisation with Chinese characteristics’. It argues that the renminbi will become a reserve currency within the next decade, eroding but not displacing the dollar’s dominance.
Jeffrey Frankel Frankel, 10 October 2011
Over the last few years, use of China’s currency for international trade has been growing steadily. Some argue this is the start of a journey that will see the renminbi displace the dollar and become the international reserve currency within a decade. This column asks whether such prophecies are realistic by looking at how other international currencies established themselves.
Fred Bergsten, 01 November 2010
Yiping Huang recently argued that the US would not win a currency war over global imbalances. This column agrees that a currency or trade war would be lose-lose. But it says that such a conflict is inevitable unless the root causes of the growing imbalances are addressed
Hans Genberg, Wenlang Zhang, 25 April 2010
Would an increase in Chinese domestic demand meaningfully reduce global imbalances and improve US and European employment prospects? This column says that Chinese policy has a relatively small impact on developed economies' macroeconomic circumstances. It estimates that major reduction in Chinese saving would improve US employment by less than one quarter of a percentage point.
William Cline, 23 April 2010
Would appreciation of the renminbi actually destroy US jobs? This column discusses recent estimates that find that making intermediate inputs from China more expensive would hurt US global competitiveness. It argues that the direct effect of an improvement in the US trade balance would create far more jobs than might be lost to more expensive intermediate inputs.
Simon Evenett, 16 April 2010
Today Vox posts a new eBook “The US-Sino currency dispute: New insights from economics, politics, and law” that gathers 28 short essays written by 33 authors from around the world. The eBook provides the best available economic, legal, political, and geopolitical thinking on the confrontation, as well as on the causes and likely consequences of the dispute.
Simon Evenett, 15 April 2010
Thanks to deft diplomatic footwork, a US-China confrontation over the renminbi has been avoided. But the US Treasury has merely postponed the publication of its report on foreign currency manipulators, and the dispute may overshadow the G20 meetings in June and November. The 28 short essays in this eBook provide the best available economic, legal, political, and geopolitical thinking on the causes and likely consequences of the dispute.
Helmut Reisen, 16 April 2010
Many economists cite the undervalued renminbi as a major cause of global imbalances and a contributing factor to the global crisis. This column says the undervaluation results mainly from the Balassa-Samuelson effect and that a rebalancing of the world economy will need reforms in China’s social, pension and family policies rather than currency appreciation.
Yiping Huang, 26 March 2010
Should the US follow Paul Krugman’s advice and use protectionist policies against China’s exports to encourage a revaluation of its currency? This column argues against this idea. Far from saving jobs, a revaluation of the Chinese currency might even cut global economic growth by 1.5%.
Richard Olsen, 19 February 2010
Many economists have pointed to China’s exchange rate policy as a cause for global economic instability. This column argues that an offshore market for the renminbi will provide a dynamic and objective benchmark from which to assess the value of China’s currency and to exert pressure to float its exchange rate.
Arvind Subramanian, 11 February 2010
What is the consequence of China’s exchange rate policy? This column argues that focusing on global imbalances clouds the real costs, and that China’s exchange rate regime is a mercantilist trade policy whose costs are mainly borne by other developing and emerging market countries.
Helmut Reisen, 17 December 2009
Must China let its exchange rate appreciate to reduce global imbalances? This column says the appropriate yardstick to measure currency undervaluation is based on the Balassa-Samuelson effect. That measure says the renminbi is undervalued by only 12%. A gradual renminbi appreciation will be sustained only if Chinese corporate and public savings are lowered.
Helmut Reisen, 20 June 2009
If history is any guide, the Chinese renminbi will soon be due to overtake the US dollar, just as the dollar replaced the pound sterling last century. But will the renminbi be ready for reserve currency status? This column discusses the issues at hand and explains why some experts would prefer the IMF’s Special Drawing Rights as the next global reserve currency.
Robert Staiger, Alan Sykes, 30 January 2009
Many critics argue that Chinese currency undervaluation amounts to an export subsidy and import tariff responsible for global trade imbalances. This column cautions against that equivalence. In the long run, currency devaluation does not alter export volumes, and in the short run, its effects depend on firms’ invoicing decisions. Policymakers should take care before turning to trade sanctions as a remedy.
Menzie Chinn, Yin-Wong Cheung, Eiji Fujii, 12 September 2008
For years, policy analysts and policy makers asserted that the Chinese currency was substantially undervalued. This column shows that statistical and data uncertainties should humble those making strong claims about the renminbi’s value.