The trade-weighted RMB is still well higher from a year ago
by Econbrowser
As noted in The Hill, from a letter written by key House and Senate leaders to President Obama:
The continued misalignment of Chinaās currency is unsustainable and unacceptable.
Two observations:
The yuanās value. While the yuan has depreciated recently, on a trade weighted basis, the real value of the yuan is (still) 14% higher (in log terms) than it was in 2014M06.
Figure 1: Real value of trade weighted yuan, 2010=1 (blue, left log scale), and USD/CNY (red, right log scale). Source: BIS, Federal Reserve Board.
As of 9/23, the yuan was 0.6% weaker against the dollar than it was in August. That means that the yuan is still substantially stronger than it was in mid-2014.
The external balance. Chinese foreign exchange reserves in dollars have been declining for the past year.
Figure 2: Chinese foreign exchange reserves excluding gold, in millions of USD, log scale (blue). Source: FRED, TradingEconomics.
Capital outflows have been increasing, at least as can be inferred from current account data and changes in fx reserves.
Source: Economist, Sept. 19, 2015.
Put together, these points do not support severe undervaluation, even after the recent yuan devaluation. More on undervaluation here and here.
There are plenty of contentious issue-areas for the US and China to deal with. Severe yuan undervaluation is not one of them (unless much larger devaluations are in the pipeline).
Copyright Ā© Econbrowser
