Is Chinese currency (Reminbi) Undervalued - Essay Example

emand to appreciate its currency since this is primarily viewed as one of the main reasons of loss of manufacturing jobs in the United States and its general deflation (Yang & Besnainou, 106). The RMB is the official currency of the People’s Republic in China having principal or base unit which is yuan. Literally, the RMB means people’s currency. Currency is significantly use for modern exchange of goods and services and this play important role how the country’s economy should operate. There must be significant unbalance economic activities between nations when for instance the US currency is overvalued while China’s currency remains undervalued.

On the other hand, suppose the US continues to go for devaluation, this will necessary create significant impacts on its internal economy particularly on the growth of its industries. Considering that US economy and China’s are interrelated and both have active participation in exchange, the move of the other may significantly create impacts on how the other should run. Thus, there is a great consideration of knowing if RMB is really undervalued. There are two basic reference rates often considered when evaluating the valuation of currency exchange rate.

The first is with respect to purchasing power parity. The next is comparing exchange rate needed to induce trade balance, or balance on the current account. Despite there are basic measurements in finding currency valuation, there are disagreements whether RMB is undervalued or not. There are different arguments whether RMB needs to appreciate or needs to decrease. The question now is how really it is to evaluate RMB which would be fair enough in order to understand its valuation. Reported in Roubini.com (par. 1 – par. 15) are different opinions from economic experts regarding the undervaluation issue of RMB which also involved different measurements they used.

Structural shock and technical difficulties facing China’s economy provide no fair measurement