China's Currency: Not the Problem

Publication Date: June 2005

Publisher: Carnegie Endowment for International Peace

Author(s): Albert Keidel

Research Area: Banking and finance; Economics

Type: Brief

Coverage: China

Abstract:

In Washington, politicians and pundits have settled on a single magical solution for the country's economic ills: getting China to revalue its currency, the RMB. By any reasonable economic measure, however, the RMB is not undervalued. China does have a trade surplus with the United States, but it has a trade deficit with the rest of the world. And China's accumulation of dollar reserves is not the result of trade surpluses, but of large investment inflows caused in part by speculators' betting that China will yield to U.S. pressure. Focusing on China's currency is a distraction. If the United States wants to improve its economy for the long haul, it had best look elsewhere, beginning with raising the productivity of American workers.