China`s Exchange Rate Policy in the Light of the German Experience with an Undervalued Deutschmark

Wolf Schäfer ()
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Wolf Schäfer: http://www.hanseuni.de

No 13, Working Papers from Hanseatic University, Germany, Department of Economics

Abstract: This paper deals with the present undervaluation policy in China in the light of the German experiences with the undervaluation of the Deutschmark under Bretton Woods conditions. In Germany, there was a 20 years lasting academic and public debate on the needs for appreciation because of the high costs of having an undervalued currency. These costs referred, i. a., to inflation import, overheating the economy, and distortion of the internal production structure of the country – this seeming to be a similar situation in present China. From the German experience it is argued that flexible nominal exchange rates for large economies like China could better reduce the costs of the adjustment needs of real exchange rates than adjustments via internal inflation. Furthermore, if China as a new Global Player fulfills some necessary conditions for sound economic performance the RMB could possibly change the international monetary order towards a 3-polar monetary system.

Pages: 8 pages
Date: 2008-07
New Economics Papers: this item is included in nep-cba, nep-cna, nep-mon and nep-tra
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