Economic Scene - The Long View of Changes in China’s Currency - NYTimes.com

Economic Scene - The Long View of Changes in China’s Currency - NYTimes.com:

"a stronger renminbi would not be a quick fix for our economic problems, as appealing a notion as that might be... The renminbi itself rose 21 percent against the dollar from 2005 to 2008, and the trade deficit continued to widen.

But there is also no question that China’s currency remains undervalued, probably by 20 percent or so. The economics are simple enough. The huge demand for Chinese goods should be driving up the price of its currency, but Beijing has been intervening to prevent that. Getting China to stop will be crucial to correcting the global economy’s imbalances. A stronger renminbi will help China’s people — many of whom are hungry for better living standards, to judge by the recent labor strikes — buy more goods and services, and it will also help the rest of world produce more. But change is not going to happen overnight.

...Chinese officials sometimes go so far as to suggest that the value of the renminbi makes little difference. That’s wrong. ...economies, like battleships, tend to turn slowly. Companies rarely move production in a matter of weeks. If they are using a Chinese supplier, it is often cheaper to stick with that supplier for a while, even if costs rise, rather than find a new one in another country.

Also see the graph of the yuan exchange rate. It fell dramatically in the 80s and 90s and then remained fixed with occasional small adjustments. Also see Paul Krugman's takedown of the Chinese notion that their exchange rate doesn't matter.