Should the US at last declare China a “currency manipulator”? The administration was due to respond to this vexed question by April 15. Pressure to find positively has been building. Now it has wisely postponed a decision.
That China intervenes on a massive scale, to keep its currency down against the dollar, is unquestionable. At the end of 2009, its currency reserves had reached $2,400bn, or close to half of gross domestic product. The question, however, is how big a distortion such intervention has created.
Estimates of the degree of undervaluation vary massively. If, for example, the Chinese government allowed its citizens to invest abroad, the flood of capital might push the renminbi down, at least temporarily. Yet, despite the difficulties in defining and measuring degrees of undervaluation, the scale of the intervention, combined with efforts made to manage its monetary effects, makes it plausible that the renminbi is indeed undervalued, in real terms.