Washington’s pressure on China to revalue its currency is strongly supported by countries such as those in the European Union whose currencies are appreciating relative to the US dollar. This is understandable, but is it appropriate? Or is the furor over the yuan simply a distraction that is diverting attention from fundamental flaws with the present dollar-based international monetary system – the biggest flaw being that such a system enables the dollar-issuing country to postpone adjustment?
The nostrum from Washington is unequivocal: the yuan should be market-determined, which will enable it to find its true competitive value at a presumably more appreciated level. But what do we mean by market determination? Has the euro, for instance, found its true competitive value?