De-pegging of the Chinese renminbi against the US dollar: analysis of its effects on China's international trade competitiveness

Abstract

We studied the over- or undervaluation of RMB against the USD, JPY and EUR using the relative purchasing power parity method. We found that the RMB is undervalued in its real terms against the USD by 20.6% and against the EUR by 15.5% between July 2005 and June 2009. We used the export growth and the world exports share methods to determine China's international trade competitiveness during the similar period of time. We found that the de-pegging of RMB has not altered China's international trade competitiveness. We imply the findings that China has been protective by involving in large-scale one-direction intervention in the foreign exchange market, which is in contrast to Article IV of the International Monetary Fund.

Keywords:

• de-pegging
• international trade competitiveness
• currency over- or undervaluation
• relative PPP theory

JEL classifications:

• E58
• F31
• G18

Notes

*HS, VI–XXII.

*HS, VI–XXII.