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Chinese currency (Yuan Renminbi, CNY) in forex

Fact 1 - Currency has been used in China since the New Stone Age, in which Chinese also invented paper money in the 9th century.

Today Renminbi, literally People's currency, abbreviated to RMB, is the currency in mainland of the People's Republic of China. The unit for Renminbi is Yuan, Jiao, Fen: 1 Yuan = 10 Jiao = 100 Fen.

Hong Kong, Macao and the Republic of China have their own monetary policies and currencies that may not necessarily be intercompatible with the renminbi.

Fact 2 - Chinese Currency Intervention Has Been Massive.

While the degree of undervaluation of China's currency is underscored by the continuing rise in its trade surplus and the continued upward pressure on domestic liquidity, it is probably useful to put the scale of Chinese currency intervention into historical perspective. The $250 to $300 billion being spent annually by China to contain yuan appreciation is the equivalent of nearly 15 percent of China's GDP. U.S. intervention on that scale would amount to over $1.5 trillion annually.

Beyond that, China's currency intervention has persisted at extraordinary levels--even as measured against heavy past intervention by other major currency peggers like Japan during the 1980s. From 1974 to 1985, just before the Plaza Accord forced the dollar down, Japan's accumulation of foreign exchange reserves from currency intervention had resulted in a trebling of its reserves. In comparison, from 1994 to 2005, China's reserves have risen by over 30 times to above $1 trillion or nearly half of GDP.

This unprecedented intervention clearly constitutes currency manipulation on a massive scale. It is, more importantly, becoming unmanageable to a degree that seriously jeopardizes the stability of the Chinese economy and the global economy.

Fact 3 - The U.S. Treasury Department’s most recent assessment of foreign trading partners' exchange rate policies refused to state that China was manipulating the value of its currency to enhance its international competitiveness. However, a serious reading of all evidence on the matter clearly shows that China has exceeded all well-established limits that have been used to determine currency manipulation in the past.

This currency manipulation is especially problematic in light of the unprecedented size and continual growth of trade imbalances between the United States and China. The bilateral deficit with China is now responsible for roughly a quarter of the entire U.S. trade deficit, which has reached a startling 6% of gross domestic product (GDP). It is widely agreed that this deficit is unsustainable and that the process of its unwinding could be painful for both the United States and its major trading partners. The higher this deficit is allowed to go, the more wrenching this adjustment will be. China’s currency policy is a primary impediment to reducing this deficit now rather than later (when the costs will be higher).

China has violated all established currency manipulation standards (september 25, 2006).

Fact 4 - China's role in the global imbalances is even greater than these numbers might suggest. A substantial increase in the value of the Chinese currency, the renminbi, is essential to reduce the imbalances, but China has blocked any significant renminbi rise by intervening massively in the foreign exchange markets, buying $15 billion to $20 billion per month for several years to keep market pressures from pushing its currency up. China apparently sees its currency undervaluation policy as an off-budget export and job subsidy that, at least to date, has avoided effective international sanction.

By keeping its own currency undervalued, China has also deterred most other Asian countries, from Japan to India, from letting their currencies rise against the dollar for fear of losing competitive position against China. Hence China's currency policy has taken virtually all of Asia out of the international adjustment process. This is critical because Asia accounts for about half the global surpluses that are the counterparts of the US current account deficit, has accumulated the great bulk of the increase in global reserves in recent years, enjoys the world's fastest rates of economic growth so can afford trade adjustment better than other regions, and is essential to the needed correction of the exchange rate of the dollar because it makes up about 40 percent of the dollar's trade-weighted index. (march 2006).