China’s exchange rate is undervalued by 20 percent against the dollar and Singapore, Switzerland and Taiwan should also be censured for intervening in foreign-exchange markets, according to an analysis by the Peterson Institute for International Economics.
China’s yuan is 17 percent undervalued on a trade-weighted basis, while Singapore’s is 29 percent below its “fundamental equilibrium exchange rate” on the same basis, says the study by the Washington-based research group. While the Swiss franc is fairly valued against the dollar, it’s 5 percent undervalued on trade-weighted terms, it said.
The topic of misaligned currencies is set to take center stage at this week’s Seoul summit of leaders from the Group of 20 amid concern some nations are devaluing their way to prosperity even as they deny that’s the case. Asia-Pacific finance ministers on Nov. 6 backed the G-20’s commitment to avoid competitive exchange-rate devaluations.
Some countries are justifiably intervening because their currencies are overvalued, the institute said in the report yesterday. The Brazilian real is 9 percent and 8 percent overvalued against the dollar and on trade-weighted terms respectively, while the Japanese yen is 3 percent above its fair value versus the dollar, according to the report. The exchange rates of South Korea, Israel and the Philippines are 2 percent overvalued on a trade-weighted basis, the institute said.
“It is quite wrong to condemn countries for resisting appreciation irrespective of their situation,” William Cline and John Williamson, economists at the Peterson Institute, said in the report. “Any agreement at Seoul to prevent an exchange-rate war should be based on a distinction between countries with overvalued and undervalued currencies, and should be designed to seek appreciation of the latter but not to debar the former from actions to prevent a further magnification of disequilibrium.”