The Chinese Press have a different take on the value of the Yuan to that of the Western Media but there can be no doubt that the USD/CNY level is still the elephant in the room and unless something is done soon to address the issue, the global imbalances which we are currently experiencing will evolve into much more serious problems.
In a true free market, the USD/CNY rate would not be at 6.82 but would be closer to 4.00. What would happen to China if the USD/CNY rate were to fall dramatically? If we go back to the time of the Plaza Accord in 1985, Japan was in a similar situation to where China is now. The idea of the accord was to weaken the USD (successful) and lower deficits (abject failure). USD/JPY fell from around 230 to 130 in about 3 years and then lost another 50% of its value as it fell to 80 in 1995. This had a terrible effect on the Japanese economy issuing in chronic deflation and leading to the lost economic decade.
Little wonder that China is fighting attempts to strengthen the CNY.
