Arab Today, arab today rmb rate debate should focus on mechanism improvement
Last Updated : GMT 23:12:04
Arab Today, arab today
Arab Today, arab today

RMB rate debate should focus on mechanism improvement

Arab Today, arab today

Arab Today, arab today RMB rate debate should focus on mechanism improvement

Beijing - XINHUA

The RMB yuan gained 0.77 percent against the U.S. dollar in April, continuing an upward trajectory in which the Chinese currency has surged more than 32 percent against the greenback since 2005. The RMB has also appreciated against the basket of major international currencies as a result of their recent sharp devaluation in the volatile global foreign exchange market. However, global opinions are still deeply divided on whether the RMB is overvalued or undervalued. The International Monetary Fund described the RMB as \"moderately undervalued\" in its mid-April World Economic Outlook while the U.S. Treasury Department said in its twice-a-year exchange rate report that the Chinese currency \"remains significantly undervalued.\" The undervaluation claims drew scorn from such experts as Huang Yiping, chief economist of Barclays Capital Asia, who said U.S. Treasury officials must be dreaming when they make such statements. The joke reflects a growing consensus of many experts worldwide that there is limited room for the RMB\'s further appreciation. Those who insist that the RMB is undervalued often cite China\'s huge trade surplus to support their views, but that argument no longer stands. That\'s because China\'s trade surplus to GDP ratio has already dropped from a previous high of 6 percent to 3 percent, the internationally recognized \"equilibrium\" level. In the end, the currency exchange rate is influenced by a variety of factors, such as economic strength, foreign trade, capital flows, and growth prospects. Therefore it is hard to determine whether the RMB is over- or undervalued for economists or politicians. Never being a purely economic issue, the RMB rate debate often involves politics, diplomacy and other complex factors. That is why there has been so much noise and distortion concerning the topic. However, the real issue here is not the numerical lows or highs of the RMB exchange rate, but whether the RMB rate pricing mechanism is perfect or not. Therefore, the focus of the debate should be placed on mechanism improvement, rather than valuation. The goal of perfecting the RMB exchange rate formation mechanism is to guide the rate toward equilibrium, which is dynamic. Losing the real focus of the debate would lead to unreasonable acts such as the obsession of some U.S. politicians in pressing for a drastic appreciation of the RMB or domestic resistance to any appreciation of the Chinese currency. In both cases, there will be a \"lose-lose\" situation for both nations.

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