A New Assessment of the Chinese RMB Exchange Rate

Abstract

Summary. -The ratio, Penn effect and behavioral equilibrium exchange rate (BEER) are used to assess the level of the bilateral real exchange rate (RER) of the Chinese RMB against the US dollar in 1980-2012. The statistical indexes and economic meaning indicate that the findings from the BEER and ratio model are more reasonable. Based on the two models, the RMB was overvalued by 10-20% in 2011-2012. Given the already overvalued currency and the not-ideal economic situation of China, such a fast RER appreciation of 6.6-6.7% per year as it was in 2005-2012 is not sustainable. Further, corresponding policy proposals are given.

The Impact of U.S. Economic Policy Uncertainty on the RMB: U.S. Dollar Exchange Rate - Case of China-US Trade War

“…Key elements impacting the RMB to USD exchange rate encompass differences in inflation rates, price levels of commodities, disparities in economic growth rates, and the status of foreign exchange reserves and the balance of payments [9]. [10] applied econometric techniques to assess the effects of GDP and the consumer price index (CPI) on the RMB exchange rate. Similarly, [11] explored the effects of various factors, including foreign exchange reserves, the U.S. unemployment rate, and business confidence on the exchange rate, pinpointing foreign exchange reserves as a critical determinant for forecasting exchange rate movements and implementing macroeconomic controls.…”