Publication

This paper discusses the adjustment of the Chinese exchange rate policy from the Chinese viewpoint. The authors consider that the Chinese economy is not overheating in the classical sense. They argue that the upward pressure that is presently experienced by the renminbi is largely due to speculative capital inflows to China, bearing signs of a self-fulfilling prophecy, and capital account controls in China. The paper concludes that even if one agrees with the view that the renminbi is undervalued, the adjustment could be realized without a large nominal revaluation of the currency and at the same time with lower adjustment costs for the Chinese economy.