Should the Chinese RMB be Further Appreciated?
The purpose of this report is to determine whether the RMB was over or under valued against the three major currencies Us Dollar (USD) , Japanese yen , ( JPY) and the Euro (EUR). Data has been used between January 2005 and December 2012 .
ANSWER TO QUESTION 1 Since the beginning of the economic reform process in 1979, the Chinese currency (yuan) was devalued on many occasions until 1994 when the two-tier foreign exchange system was ended. While the official rate of yuan had been maintained constant over seven years since 1998, the pressure on the revaluation of yuan intensified. After years of speculation and hearsay, China finally revalued the RMB by 2.1% in July 2005 . While the currency remains effectively pegged to a basket of hard currencies,( USD, JPY, EUR, WON) it is allowed to fluctuate against the US dollar (USD) by less than 0.3 per day in either direction. ( Zhang , N.D )
Below , the chinese RMB has been compared with the USD , Japanese Yen , and Euro in terms of their nominal rate and real exchange rate . Nominal rate is the rate at which the currency will be traded with another and the real exchange rate is the purchasing power of a currency relative to another . ( Zhang , N. D ) The Chinese RMB and The USD
As we can see in the above graph , the nominal rate has been higher than the real exchange rate , before and after the revaluation in july 2005. This shows that the RMB was undervalued by 0.706% ,and it undervalued further till December to 2.32 % . (see appendix 1) , However, from the mid 2007 , the real exchange rate seemed to be higher than the nominal rate till 2008 , resulting in an over valuation of 1.48% by 2008 December. After again a movement in end 2009 , the RMB overvalued by to 0.3607% by end 2012 . Overall , the RMB was overvalued by an average of 0.35% in the time spam.
The RMB and the Japanese YEN
The RMB seemed to have a higher Real exchange rate against the JPY even before the
ANSWER TO QUESTION 1 Since the beginning of the economic reform process in 1979, the Chinese currency (yuan) was devalued on many occasions until 1994 when the two-tier foreign exchange system was ended. While the official rate of yuan had been maintained constant over seven years since 1998, the pressure on the revaluation of yuan intensified. After years of speculation and hearsay, China finally revalued the RMB by 2.1% in July 2005 . While the currency remains effectively pegged to a basket of hard currencies,( USD, JPY, EUR, WON) it is allowed to fluctuate against the US dollar (USD) by less than 0.3 per day in either direction. ( Zhang , N.D )
Below , the chinese RMB has been compared with the USD , Japanese Yen , and Euro in terms of their nominal rate and real exchange rate . Nominal rate is the rate at which the currency will be traded with another and the real exchange rate is the purchasing power of a currency relative to another . ( Zhang , N. D ) The Chinese RMB and The USD
As we can see in the above graph , the nominal rate has been higher than the real exchange rate , before and after the revaluation in july 2005. This shows that the RMB was undervalued by 0.706% ,and it undervalued further till December to 2.32 % . (see appendix 1) , However, from the mid 2007 , the real exchange rate seemed to be higher than the nominal rate till 2008 , resulting in an over valuation of 1.48% by 2008 December. After again a movement in end 2009 , the RMB overvalued by to 0.3607% by end 2012 . Overall , the RMB was overvalued by an average of 0.35% in the time spam.
The RMB and the Japanese YEN
The RMB seemed to have a higher Real exchange rate against the JPY even before the