In 2011 China’s currency appreciated 8%. In the last three months of the year, the extrapolated annual rate of appreciation was 20%. Does this mean that the country will no longer be the target of currency manipulation charges?
The International Monetary Fund will spend the next few months reviewing the Chinese yuan’s current designation as ‘substantially undervalued’ with an eye toward revising the rating to the far less opprobrious ‘undervalued.’ For one thing, such a change would undermine efforts in the US Senate to impose penalties on China if the country is found to be manipulating the value of its currency.
An undervalued currency makes China’s exports cheaper on international markets. China has benefited for years from its low-wage, export-based economy. As China’s currency appreciates, prices and wages inside China rise and it buys fewer imported goods. These effects caused the economy to cool in 2011.