Author: tom Dragon
Date: 06-11-09 11:17
Americans had enjoyed bountifull cheap but quality products produced by other countries(thanks to their low labor cost).
From July 2005, when it abandoned its fixed peg to the dollar, Beijing allowed the yuan to rise steadily, but since last July it has again been virtually pegged to the greenback. And there are concerns that China may allow the yuan to depreciate to help its exporters—with worrying echoes of the beggar-thy-neighbour policies that exacerbated the Depression. But American politicians are wrong to focus only on the yuan’s dollar exchange rate. Since July the yuan has gained 10% in trade-weighted terms. It is up 23% against the euro, and 30% or more against the currencies of many other emerging economies."
"PPP is a long-term concept. However, the relationship between prices and GDP per head can be used to estimate the short-term fair value of a currency relative to others. Using a simple model, which adjusts the Big Mac index for differences in countries’ GDP per head and relative labour costs, gives the result that the yuan is now less than 5% undervalued."