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what about the yuan is undervalued?

#1TrueKuPosted 7/4/2011 7:40:53 PM
how do people even calculate the "real value" of a currency?
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Just to see what happens.
#2LuigisBroPosted 7/4/2011 9:29:35 PM
the free market currency exchange determines the real value of every currency including the yuan, that yuan is undervalued is just bs
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#3Barenziah Boy ToyPosted 7/4/2011 9:43:36 PM
^ L2 educate yourself.

http://en.wikipedia.org/wiki/Renminbi_currency_value

For most of its early existence, the Renminbi was pegged to the US Dollar. Its value gradually declined as China embarked on a new economic course during Deng Xiaoping's leadership and transformed into a more market capitalistic economy. Since 2005, the Chinese government eliminated its policy of pegging the Renminbi to the US dollar. The Renminbi has now been floating within a small margin to a basket of currencies selected by the Chinese government.

The Renminbi has appreciated 22 percent since the mechanism reform in 2005 of the Yuan exchange rate. However, during the onset of the Global financial crisis, the Renminbi was unofficially repegged to the US dollar. It was again depegged from the dollar in June 2010.

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#4-Kicksave-Posted 7/5/2011 12:15:36 AM(edited)
the free market currency exchange determines the real value of every currency including the yuan, that yuan is undervalued is just bs

That's not right. If it were actually floated on the market it'd be at the right value; instead it appears to be unofficially pegged at an artificial rate by the Chinese government so that they can maintain the competitive (export) advantage of a devalued currency. In the last two years this issue--not Taiwan--has been the most contentious between the U.S. and China.

But to answer the TC, you really look at purchasing power parity of the currency. Let's say a Big Mac is a universally similar product available everywhere (kinda true), and the value of this deliciousness is about $3. But when I take my $3 to China and buy Big Macs in the local currency, I can afford o get two of them. Yay...huh? Because the yuan has been pegged lower than it's true value/worth relative to the dollar, my $3 gets me more than it should when I change it to yuan. Extrapolate this a global basket of goods, and you'll see why the yuan is generally undervalued.

Why? Well, if I'm sitting at home in the U.S., and I can get a single Big Mac from U.S. McDonald's for my $3, or I can get two(!) Big Macs from Chinese McDonald's for my $3, I'll buy Chinese Big Macs every time (assuming there's a magical way to import them). Extrapolate this to a macro level, and you'll see why the Chinese want to keep their currency devalued so that their exports to other countries, particularly the U.S., remain cheap and competitive (they have other advantages too, like labor costs, etc., but leave them out for purposes of this example.)
#5TrueKu(Topic Creator)Posted 7/5/2011 1:19:44 AM
[This message was deleted at the request of the original poster]
#6TrueKu(Topic Creator)Posted 7/5/2011 1:40:27 AM
So, since the Big Mac costs more in Britain than in the US.
The US dollar is undervalued to boost exports to the UK.
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Just to see what happens.
#7-Kicksave-Posted 7/5/2011 2:00:00 AM
^Well, if we are talking strictly the sandwich itself (I'm getting hungry now), the Big Mac costs actually pretty close to what it should in pounds according to the Economists magazine's last Big Mac Index (yes, one exists!).

Incidentally, in terms of overall valuation, the pound is actually also pretty close to the mark by most economists' opinions, if not slightly undervalued, relative to the dollar. The U.S. and UK both free float their currencies, and do not as overtly manipulate it to gain export advantage as China is believed to.
#8OrcaPosted 7/5/2011 2:03:00 AM
No. The US dollar is more or less correctly valued because its "price" is determined by how much people are willing to pay for it. The Yuan is pegged, so its value isn't determined by how much people are willing to pay for it, and because it's pegged lower than what people are willing to pay for it, it's "undervalued".
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#9Megumi samaPosted 7/5/2011 5:08:55 AM
It's not so much that because the values of the currencies are unequal that one is undervalued, it is that importing goods generally serves to weaken a nation's currency while exporting goods generally serves to strengthen it, and the Chinese are a major net exporter who is purposely devaluing their currency in an attempt to feed their economic growth and put off people moving to other countries to produce their cheap goods.

Fun fact: the United States is being accused of the same thing by foreign countries through QE1 and QE2, while people in the states bemoan the weakening of the dollar as if it is an inherently bad thing (it isn't an inherently good or bad thing, it just has different policy ramifications.)
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#10TrueKu(Topic Creator)Posted 7/5/2011 6:10:33 AM
Kicksave posted...
^Well, if we are talking strictly the sandwich itself (I'm getting hungry now), the Big Mac costs actually pretty close to what it should in pounds according to the Economists magazine's last Big Mac Index (yes, one exists!).

Incidentally, in terms of overall valuation, the pound is actually also pretty close to the mark by most economists' opinions, if not slightly undervalued, relative to the dollar. The U.S. and UK both free float their currencies, and do not as overtly manipulate it to gain export advantage as China is believed to.


ok the philippine peso is free floating
and philly big macs cost near as much as in china converted into dollars
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Just to see what happens.