Apr 2, 2010

The renminbi is not undervalued

Jim O’Neill, chief economist at Goldman Sachs writes in the FT: 
...the real story since the worst of the crisis is not China’s recovering exports but China’s strong imports... This is seen not just in Chinese data, but in those from many other important trading nations... Germany’s trade with China is showing such strong growth that by spring next year it might exceed that with France. China last year reported a current account surplus of 5.8% of GDP, significantly lower than apparently assumed by many people in Washington. In 2010, it could be closer to 3% – incidentally below the 4% level deemed as “equilibrium” by the Peterson Institute for International Economics.
Which brings me to the exchange rate. I have spent a lot of my career working on exchange rate models and am familiar with all the pitfalls. We have developed ours over the years at Goldman Sachs, including for the renminbi. At the moment, rather oddly, our model suggests that the renminbi is very close to the price that it should be. This has not always been the case. The model used to suggest the currency was undervalued by about 20%, but it has moved by that degree in the past five years.
ht: Tyler Cowen


TomasH said...

In general i wouldn't trust banker's public statements.
Has he an incentive to reveal "the truth"? NO
Has he an incentive to lobby or manipulate public opinion in a way that positively affect his investments? YES

I don't know whether renminbi is undervalue, but i know the GS guy will claim that if it's in line with his interests.

(to calm things down I'm not blaming anything on anyone)

TomasH said...
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TomasH said...
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