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China's interest in a revaluation of the yuan

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  • John Williamson

Abstract

This paper aims to illustrate how an equilibrium exchange rate of the Yuan would contribute to China's achievement of non-inflationary full employment – defined as internal balance by James Meade in 1951, as well as the balance of international payments. In terms of Meade's model, China currently has both excess demand and a payments surplus, so that it would benefit from revaluation, which helps curb internal inflation and the external foreign surplus simultaneously. For China, specifically, revaluation would support combating price increases and facilitate a shift of resources into consumption and raising living standards. The paper also examines three common reasons advanced by groups in favor of avoiding appreciation of the RMB, finding none of them theoretically or empirically convincing. The pursuit of both growth/employment and price stability objectives makes China unable to afford having an undervalued exchange rate.

Suggested Citation

  • John Williamson, 2011. "China's interest in a revaluation of the yuan," China Economic Journal, Taylor & Francis Journals, vol. 4(1), pages 15-23.
    • Handle: RePEc:taf:rcejxx:v:4:y:2011:i:1:p:15-23
    DOI: 10.1080/17538963.2011.618696
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