Renminbi currency value (Ofer Abarbanel online library)

Renminbi currency value is a debate affecting the Chinese currency unit, the renminbi (Chinese: 人民币 Code:CNY). The renminbi is classified as a fixed exchange rate currency “with reference to a basket of currencies”,[1] which has drawn attention from nations which have freely floated currency and has become a source of trade friction with Western nations.[2]


The renminbi was introduced in October 1949 after the Communists took power on the Chinese mainland and established the People’s Republic of China.[3] Since the Chinese economic reforms of 1978, China has become the world’s biggest exporter, second largest economy and biggest manufacturer in the world.[4][5]

For most of its early history, the renminbi was pegged to the U.S. dollar at ¥2.46 per USD (note: during the 1970s it was revalued until it reached ¥1.50 per USD in 1980).

Its value gradually declined as China embarked on a new economic course during Deng Xiaoping’s leadership and transformed into a more market-based capitalistic economy.[6][7]

Since 2005, the Chinese government has overturned its previous policy of pegging the Renminbi to the US dollar. The renminbi now floats within a small margin compared to a basket of currencies selected by the Chinese government.[8] This is seen as a move to a more fully free-market floating of the Renminbi. The Renminbi has appreciated 22 percent since the mechanism reform in 2005 of the Yuan exchange rate.[9] However, during the onset of the 2007-2008 global financial crisis, the renminbi was unofficially repegged to the US dollar. It was again depegged from the dollar in June 2010.

After 2010, the exchange rate floated in line with fundamentals,[10] staying mostly between 6 and 7 CNY per USD. In 2018, the renminbi lost value as China’s exports were targeted by USA tariffs and markets had doubts on the strength of the economy.[11] Such a depreciation is typical of a country whose exports are at risk, as shown by the drop of the pound after Brexit,[10] and in July 2019 the IMF found the yuan to be correctly valued, while the dollar was overvalued.[12] In August 2019, the central bank of China (PBOC) let the renminbi fall over 2% in three days to the lowest point since 2008 as it was hit by strong sales after threats of further USA tariffs.[12]

International consequences

Prominent economists including World Trade Organization (WTO) Director-General Pascal Lamy,[13] U.S. Federal Reserve Chairman Ben Bernanke,[14] Nobel Laureate Paul Krugman,[15] Director of the Peterson Institute for International Economics Fred Bergsten,[16] and Cornell University Professor Eswar Prasad[17] have repeatedly stated that China’s currency is undervalued.

Peterson Institute of International Economics study said in 2010 that the yuan was 20 percent undervalued versus the dollar.[18]

An undervalued currency causes serious problems and international criticism.

  1. As a member of the WTO and IMF, China’s undervalued renminbiwould violate Article XV(4) of the General Agreement on Tariffs and Trade Article 1, and 3[19] of the WTO Agreement on Subsidies and Countervailing Measures,[20] and Article IV Section 1 of the IMF that prohibiting countries from currency manipulation.[21] However, the USA Treasury in 2018 cleared China from the accusation of currency manipulation.[22]
  2. The trade dispute with the U.S. would be worsened by an undervalued renminbi.[23]
  3. An undervalued renminbicould cause inflation. In an effort to hold the value of the yuan comparatively low, the government has to buy foreign currencies through trade surpluses and investment. China’s foreign reserves, already the world’s biggest, soared to $2.8 trillion at the end of 2010. In order to buy foreign currencies, the government has to print the RMB “at a furious pace” and therefore incur inflation.[24] However, between 2012 and 2019, China’s inflation has been persistently low, around 2%.[25]
  4. An undervalued renminbiwould contribute to very large portfolio foreign capital inflows, motivated by expectations of quick appreciation, adding pressure for the currency to rise.[26]
  5. An undervalued renminbiwould undermine domestic consumers’ purchasing power when it comes to goods from outside the country. An undervalued currency makes foreign goods more expensive in terms of yuan.[27][28]

Chinese domestic discourse

Chinese economic reforms in the late 1970s propelled the Chinese economy from a closed centrally planned economy to one opened to foreign investments and capital, oriented to manufacturing of electrical goods, textile, toys and exports. This[citation needed] has allowed China to become a creditor country in relations to current accounts and the largest in terms of foreign reserves.

China maintains that the value of the renminbi is market-driven. China says that its population receives high savings from the structure of the economy, and that gradual increase in domestic consumption is important for its own growth.[29] While the Chinese have argued that their exchange rate is purely a domestic policy matter, economists have begun to suggest that Chinese policy will soon shift to accelerate appreciation of the Yuan in order to reduce domestic inflation and to increase the wealth of Chinese citizens.[30]

Others in China[who?] view this dispute as an attempt to ring in China’s economic development as part of a strategy for economic imperialism of the industrialized world led by the United States.[31] They likened it to the unequal treaties[32] signed after the Boxer rebellion and the First and Second Opium Wars.[33]


  1. ^“US House passes China Currency Sanctions Bill”. BBC. September 29, 2010. Retrieved April 15, 2011.
  2. ^Simon Kennedy; Eunkyung Seo (October 24, 2010). “G-20 Pledges to Avoid Devaluations in Push to Defuse Global Trade Tensions”. BLOOMBERG L.P. Retrieved October 26,2010.
  3. ^Stephen C. Thomas (2006). “China’s Economic Development from 1860 to the Present: The Roles of Sovereignty and the Global Economy” (PDF). Forum on Public Policy. Retrieved October 26, 2010.
  4. ^Rachman, Gideon. “China can no longer plead poverty”. The Financial Times Ltd. Retrieved October 26, 2010.
  5. ^Associated Press in Tokyo (August 16, 2010). “China overtakes Japan as world’s second-largest economy”. London: Guardian News and Media Limited.
  6. ^CHANG, Gene Hsin (May 3, 2006). “Estimation of the Undervaluation of the Chinese Currency by a Non-linear Model” (PDF). Retrieved October 26, 2010.
  7. ^Knowledge@Wharton (July 7, 2010). “China’s Renminbi Revaluation: Small Step, Big Impact?”. Wharton School of the University of Pennsylvania. Retrieved October 26, 2010.
  8. ^Kim F.. CRITICAL ANALYSIS: THE RMB’S EXCHANGE VALUE. Yale Economic Review. 2009 Jul 1;5(2): 22-23. In: ABI/INFORM Global [database on the Internet] [cited 2010 Oct 25]. Available from:; Document ID: 1873699161.
  9. ^ “Chinese vice premier talks economy with U.S. treasury secretary”. Xinhua News Agency. Retrieved October 26, 2010.
  10. ^ Jump up to:ab Krugman, Paul (August 5, 2019). “Trump’s China Shock”. The New York Times. Retrieved August 6, 2019.
  11. ^Saleha Mohsin (August 6, 2019). Missing or empty |title=(help)
  12. ^ Jump up to:ab Winni Zhou, David Stanway, Cheng Leng, Yawen, Andrea Shalal (August 6, 2019). “China media says U.S. ‘destroying international order’, after currency-manipulator branding”. Reuters.
  13. ^“WTO’s Lamy says worried by currency interventions”. Business on October 30, 2010. Retrieved March 3, 2011.[dead link]
  14. ^Bernanke, Ben (November 19, 2010). “Rebalancing the Global Recovery”. Federal Reserve. Board of Governors of the Federal Reserve System. Retrieved April 9, 2018.
  15. ^Paul Krugman (March 14, 2010). “Taking on China”. New York Times. Retrieved April 15, 2011.
  16. ^“China’s yuan value hits U.S. economy, two experts say”. The Washington Times LLC. March 15, 2010. Retrieved April 15, 2011.
  17. ^“Prasad Says China Should Allow Some Degree of Yuan Gain”. Bloomberg Inc. February 8, 2011. Retrieved April 15, 2011.
  18. ^Simon Kennedy (November 9, 2010). “China Yuan Undervalued by 20% Versus Dollar, Peterson Study Says”. BLOOMBERG L.P. Retrieved March 3, 2011.
  19. ^“THE GENERAL AGREEMENT ON TARIFFS AND TRADE” (PDF). WTO. Retrieved April 15, 2011.
  20. ^“Subsidies and countervailing measures”. WTO. Retrieved April 15, 2011.
  21. ^“Article IV – Obligations Regarding Exchange Arrangements”. Retrieved April 15, 2011.
  22. ^“China not a currency manipulator according to U.S. Treasury’s…” Reuters. October 12, 2018. Retrieved August 5, 2019.
  23. ^Joe McDonald (May 20, 2007). “Value of yuan likely to dominate U.S.-China trade talks”. New York Times LLC. Retrieved April 15, 2011.
  24. ^Keith Bradsher (January 11, 2011). “Chinese Foreign Currency Reserves Swell by Record Amount. The New York Times”. The New York Times. Retrieved April 15, 2011.
  25. ^Daniel Moss (March 11, 2019). “Don’t Underestimate China’s Low-Inflation Headache”. Bloomberg. Retrieved August 5, 2019.
  26. ^Morris Goldstein (2006). “Adjusting China’s Exchange Rate Policies”. Institute for International Economics: Washington DC. SSRN 578903.
  27. ^Stevenson T.. Flexibility will allow RMB to support local economy. Investment Week. 2010 Jul 5 45. In: Banking Information Source [database on the Internet] [cited 2010 Oct 26]. Available from:; Document ID: 2086101961.
  28. ^JOHN GARNAUT THE EAST IS RED. Wave of change to hit China’s economy. Sydney Morning Herald. 2010 Oct 26 8.
  29. ^Michael Spence. The west is wrong to obsess about the renminbi. Financial Times. 2010 Jan 22 11. In: ABI/INFORM Global [database on the Internet] [cited 2010 Oct 26]. Available from:; Document ID: 1945427481.
  30. ^Will the Yuan Rise? The Chinese Story. June 8, 2011.
  31. ^Huang Shuo (October 1, 2010). “How China will break US ring-fence”. Retrieved October 26, 2010.
  32. ^Valerie Hansen; Kenneth Curtis (2008). Voyages in World History, Volume 2. Cengage Learning. p. 694. ISBN 9780618077250. Retrieved October 26, 2010.
  33. ^Lourie, Richard (October 25, 2010). “Bullish on the Bear”. The Moscow Times. Retrieved October 26, 2010.

Ofer Abarbanel – Executive Profile

Ofer Abarbanel online library

Ofer Abarbanel online library

Ofer Abarbanel online library