Is there evidence of Chinese currency manipulation against Europe?
China is considered by many to promote exports and discourage imports by fixing its exchange rate towards the US dollar (as part of the basket China has been using since July 2005) below the renminbi’s ‘real’ value. The support for the view that China’s currency manipulation explains its trade surplus (plus foreign investments and reserve accumulation) largely comes from exercises to determine the “right” exchange rate. The theoretical framework of such analyses is based on the assumption that currency de- or revaluation can influence the exports and imports by inducing expenditure switching. The effectiveness of the policy depends on price elasticities (the Marshall-Lerner condition). Figure 1 shows the development of the nominal and real exchange rate of the Chinese currency towards the US dollar since 1980. Until 1994, the renminbi depreciated (especially sharply in 1994), both in real and nominal terms. Since then, the real exchange rate appreciated until 2000 and depreciated until
