Renminbi is up 5-25 percent: What global imbalance?
by Benjamin on March 13, 2010
There has been much complaint from the US administration that the Chinese authorities should increase the value of their currency (vis-a-vis the dollar especially), because that would help re-adjust global balances and help the world out of recession. Having been forced to exchange money today, I noticed an interesting trend: Seems to me the Renminbi has already been revalued – but by the markets.
Against the Euro and British Pound the Chinese currency is up 8.42% and 7.45% over the last 12 months, less than its heights of 18-19% in November 2009 – but it’s up. For North American currencies, who are members of NAFTA of course, the picture is even starker: Against the Mexican Peso it’s up 21.35% and a staggering 26.39% against the Canadian Dollar (rates and graph here).
If we look to China’s neighbours, the picture is the same. Japan, Taiwan and India hover around the same levels as the European nations with a 8%, 9% and 13.5% depreciation of the local currencies relative to the Renminbi over the last 12 months. Other Asian nations, and major trading partners of China have seen their local currency depreciate by North American levels: Russia (21.7%), Indonesia (30.8%) and South Korea (36.6%) are all falling against the Renminbi. (data and graph here) .
That means the renminbi has already gone up in value against all the world currencies which make up their top 10 trading partners, both for imports and exports. It is only against the US Dollar, to which the Renminbi is pegged that the exchange rate has remained constant. So what to make of the US calls for a depreciation? Clearly this is not a call for a global re-adjustment, but a domestic re-adjustment. Two questions immediately come to mind: If US lobbying efforts are succesful, what should the magnitude of a re-adjustment be? 5% like Europe or 25% like North America? Secondly, could it be that U.S. monetary policy, as far as the exchange rate goes, is no longer set in New York but in Beijing?
