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Cross Posted from the CPA Official Website.
CPA, through today's Issues Forum, is releasing two new reports on currency misalignment. Collectively, the reports answer these questions:
1. How do you measure currency misalignment?
2. What difference does it make?
The first, Estimation of the Fundamental Misalignment of the Chinese Renminbi
by the China Currency Coalition, describes the most reliable way to
calculate Asian currency misalignment today. Using the same methods
adopted by the International Monetary Fund, the report finds that the
Chinese Renminbi is undervalued by 35%.
The second report, authored by Charles Blum and Donna Tung of IAS Group, is entitled "Appreciation of the Renminbi: What's Happened -- And What Hasn't". The document outlines the impact of the undervaluation to answer the "Why does it matter?" question.
"While remnimbi has been allowed to appreciate modestly since 2005,
that revaluation has been grossly inadequate," Charles Blum, CPA board
member, said. "This undervaluation poses real risks to the world
economic system."
From the second report:
These data depict an alarming situation that in many ways is
worsening rapidly. It is undoubtedly true that, absent the real
appreciation that has taken place since July 2005, things would be that
much worse. Nonetheless, it seems incontrovertible that the initial
revaluation and the subsequent appreciation of the renminbi over the
past 36 months have been grossly inadequate. The “intended
consequences” of a revaluation – more consumption-led growth, lower
inflation, reduced trade imbalances – have not yet materialized. The
unbridled growth in reserves, in particular, poses a threat to the
IMF’s objective of “continuing development of the orderly underlying
conditions that are necessary for financial and economic stability.”
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