Is a Rising Yuan Inevitable?

From MacroBusiness:

Let’s face it, China is manipulating its currency. You can call it whatever you want, but China is manipulating its currency.

As part of its trade policy, China has been trying to prevent they Yuan from appreciating quickly. They have also taken the lesson from 1985 Plaza Accord in which the US and others forced Japan to float Yen, and are quite determined not to repeat that. Of course, that did not help with the US’s trade deficit, and Japan is still running trade surpluses two and a half decades later.

Because of the allegedly undervalued yuan, China has been running a persistent trade surplus. And because of its capital control which favours in-flow and limits out-flow, it also has surpluses in the capital account. As a result, we seem to always have too much money sloshing around in China, and the growth of its money supply makes the effect of quantitative easing in the United States looks insignificant (that also means that China has to intervene in the market by buying foreign currencies and assets, and hence the large foreign exchange reserve). That’s particularly true when the $US weakens. As I have shown previously, even though Chinese Yuan has been creeping higher against the $US dollar, it has not appreciated against many other currencies.

http://www.macrobusiness.com.au/2011/10/is-a-rising-yuan-inevitable/