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On valuations of the yuan.

"On June 13th ... the Treasury decided yet again not to brand China a currency 'manipulator' in its semi-annual report on exchange rates, but confidently declared that the yuan was 'undervalued.' And on June 18th the 1MF also announced a new framework for monitoring countries' exchange-rate policies. It will track indicators such as heavy foreign-exchange intervention and 'fundamental exchange rate misalignment' in order to identify countries that are unfairly manipulating their currencies."

"This activity is based on the widespread assumption that the Chinese yuan is hugely undervalued against the dollar. Yet the awkward truth is that it is almost impossible to be sure when a currency is misaligned, let alone by how much. A recent Treasury research paper admitted that there was no fail-safe method to estimate the correct value of a currency. A study by two IMF economists, Steven Dunaway and Xiangming Li, examined eight different estimates of the yuan's supposed undervaluation: they ranged from zero to almost 50 percent depending on the methods and assumptions used."

--The Economist, June 22
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Title Annotation:China
Author:Rees, Matthew
Publication:The International Economy
Date:Jun 22, 2007
Words:171
Previous Article:On China's stock market.
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