Allegations that the renminbi is undervalued are unfounded because its real effective exchange rate has continued to increase since 2005

The exchange rate of the Chinese currency has been a source of contention in the international arena in recent months, especially since the International Monetary Fund issued a statement in late July stating that the renminbi is undervalued by 3 to 23 percent and the passage of the Currency Exchange Rate Oversight Reform Act of 2011 by the US Senate in October. Brazil is also trying to move along-running exchange rate war to the World Trade Organization.

However, the assertion that the renminbi is undervalued is completely groundless. It has appreciated 21 percent since 2005 in terms of its real effective exchange rate, which has approached the equilibrium exchange rate level since last year, when the country introduced its most recent exchange rate reforms.

The renminbi's value against the US dollar has exceeded 30 percent since 2005 and nearly 4.6 percent since the onset of this year, and it has risen nearly 40 percent against the dollar since 1994, when China began its foreign exchange reforms. Data from the Bank for International Settlements show that the renminbi's real effective exchange rate has risen 5.34 percent over the past 10 months, 12 percent higher than at the end of 2007, the biggest appreciation among emerging economies except for Brazil and Indonesia.