Faster appreciation against the dollar. And apparently against a broad basket of currencies.
The Treasury Department’s Report to Congress on
International Economic and Exchange Rate Policies presents an interesting graph of the Chinese Yuan’s (CNY) exchange rate against the dollar, along with daily highs and lows, and the band.
Figure 1: CNY/USD exchange rate. Source: Treasury Department’s Report to Congress on
International Economic and Exchange Rate Policies (December 2006).
The level of the CNY is depicted in level terms. It is difficult to discern changes in the pace of RMB appreciation in level unless the exchange rate is presented in log terms (the value of the RMB is presented below). And more importantly, it is the trade-weighted exchange rate that matters. I’ve plotted the (log of the) Bank for International Settlement’s trade weighted value of the RMB as well.
Figure 2: Log value of CNY against USD (blue), and against broad basket of currencies (red), both rescaled to 0 in 2005m06. Source: St. Louis Fed FREDII and BIS.
What the graph makes clear is the pace (in percent) of RMB appreciation against the US dollar is accelerating. That’s not news, although it bears repeating. Interestingly, the pace of appreciation against the currencies of China’s trading partners is roughly the same as that against the dollar, over the past 16 months. That is something that is not often heard.