What If China Revalues Its Currency?

Andrew Stoeckel and Warwick J. McKibbin


China’s economy, imports and exports are booming. Foreign exchange reserves are accumulating. These are the consequences of market reforms, and a perceived favourable investment climate by foreigners. They are also the result of a large fiscal stimulus and the maintenance by authorities of a fixed exchange rate with the US dollar.

United States leaders have called on the Chinese to revalue their currency. So far the Chinese have resisted. The effects of revaluing the currency are not as obvious as it might seem, especially for third countries, because of a variety of offsetting factors.