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Opinion: Protecting monetary sovereignty

By Zhang Monan (China Daily)

11:27, November 27, 2011

Allegations that the renminbi is undervalued are unfounded because its real effective exchange rate has continued to increase since 2005.

The exchange rate of the Chinese currency has been a source of contention in the international arena in recent months, especially since the International Monetary Fund issued a statement in late July stating that the renminbi is undervalued by 3 to 23 percent and the passage of the Currency Exchange Rate Oversight Reform Act of 2011 by the US Senate in October. Brazil is also trying to move a long-running exchange rate war to the World Trade Organization.

However, the assertion that the renminbi is undervalued is completely groundless. It has appreciated 21 percent since 2005 in terms of its real effective exchange rate, which has approached the equilibrium exchange rate level since last year, when the country introduced its most recent exchange rate reforms.

The renminbi's value against the US dollar has exceeded 30 percent since 2005 and nearly 4.6 percent since the onset of this year, and it has risen nearly 40 percent against the dollar since 1994, when China began its foreign exchange reforms. Data from the Bank for International Settlements show that the renminbi's real effective exchange rate has risen 5.34 percent over the past 10 months, 12 percent higher than at the end of 2007, the biggest appreciation among emerging economies except for Brazil and Indonesia.

From a perspective of trade imbalances, China's trade surplus has suffered a considerable decline in recent years, with its proportion to the country's GDP declining steeply since 2009. The country's trade surplus was 3.9 percent to its GDP in 2009 and 3.0 percent in 2010. The proportion declined to 2.8 percent in the first half of this year, far lower than 4 percent, which is an internationally recognized index to measure a country's international payment status. If calculated in US dollars, China's current trade surplus is 45 percent lower than its peak value in 2008. All these indicate that China's international payments are becoming balanced.

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wende at 2011-11-2871.251.41.*
By keep printing currency, USD is in effect devalued. Then US wants China to appreciate the exchange rate. These moves combined have evaporated trade surpluses of China. China must only consider its national interest only. China must not kowtow to western pressure and retaliate whenever there is an opening.

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