April 29, 2011

Those politicians who argue that the Chinese or any other currencies fixed to the dollar are manipulating their currency to gain an unfair advantage are wrong. China’s currency is not overvalued by some 27%, as the protectionists say. The domestic prices and unit labor costs have already accounted for the terms of trade effect and, in so doing, they restore and maintain the true market-driven relative price, not an artificial one, as the critics of the China fixed exchange rate argue.

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