After his recent two-week visit to China, the International Monetary Fund’s First Deputy Managing Director David Lipton, shared his views on the direction in which the country and its economy is heading. In his report, Mr Lipton shared his view that “while undervaluation of the Renminbi was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued.” The findings of this report will be part of a report presented to the IMF’s Executive Board for discussion and decision.
FGI Senior Fellow Guonan Ma writes: “This 20-year old dollar peg has served the Chinese economy well, but its time is up. As the biggest trading nation and second largest economy, China is too big to be anchored to any single currency, even in a loose fashion. A dollar peg has oftenamplified external shocks to the Chinese economy because of the dollar’s safe haven role. Although the US no longer welcomes the Chinese peg to its currency, it continues to demand nothing but ‘one-direction flexibility.”
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