2014-08-20

Another Overvalued Yuan Article

Jack Lew's Worst Nightmare - China's Currency Should Be 20% 'Weaker'
Following a currency basket in the wake of the 2008 crisis would have forced the yuan to depreciate against the dollar. This would have been politically unacceptable for China’s main trading partners and would have risked turmoil in global markets. As a result, policy makers halted ties to the currency basket, and the yuan rose.

Now approaching its fair value, China’s currency may move in either direction. The diminishing one-way pressure for the yuan to appreciate makes a case for Chinese policy makers to revisit the currency basket.
According to a chart accompanying the article, the yuan is actually 20% overvalued based on the currency basket.

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