Investigation into the Debate over RMB Revaluation

Excerpt:The accusation that the Chinese government has kept the value of the RMB artificially low has become a topic of much contention, particularly as countries around the world seek to rebuild their economies. For the United States (and the EU to an increasing extent), it is particularly important as it seeks for ways to balance a major trade deficit, that many claim is holding back economic recovery efforts. The argument typically made is that if the Chinese government were to allow their currency to appreciate to levels more freely dictated by the market (estimates range from 20%-25%), then it would make American goods relatively cheaper thus increasing exports for the U.S. The Chinese on the other hand maintain that this has very little to do with the trade imbalance, and that its first duty is to protect the interests of its own citizens, supporting industry through its monetary policy. Both arguments are valid to a certain extent, which has contributed to the issue becoming increasingly complex and controversial.

Thus, much of the debate over the value of the RMB centers around the massive trade surplus China holds over the United States and much of the rest of the world. Many experts believe that, from looking at the current data, it is still difficult to judge what the future will hold for China’s trade surplus. It is however becoming clear that the comfortably large margins the country has enjoyed in recent years may not be sustainable for too much longer.