The Chinese currency: how undervalued and how much does it matter?

Phil Garton and Jennifer Chang
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Phil Garton: Treasury, Government of Australia
Jennifer Chang: Treasury, Government of Australia

Economic Roundup, 2005, issue 4, 83-109

Abstract: The size of the imbalance in China’s external payments suggests that the RMB is significantly undervalued. This does not appear to have had significant adverse effects on the Chinese economy to date, but the costs of holding down the exchange rate are likely to rise in the future. While the contribution of the RMB to external imbalances is often exaggerated, currency adjustment will be a necessary element of the adjustment process. A more flexible exchange rate is in China's medium-term interests, but the pace of adjustment and its sequencing with other reforms will need to be carefully managed. Precipitate moves could be costly both to China and to global markets.

Keywords: China; currency; fiscal policy; monetary policy; surplus (search for similar items in EconPapers)
JEL-codes: E63 H87 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (3)

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