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The Renminbi Goes Forth

BEIJING – In June, the Peoples’ Bank of China (PBC), China’s central bank, announced an end to the renminbi’s 23-month-old peg to the dollar and a return to the pre-crisis exchange-rate regime adopted in July 2005. So far, however, the RMB’s appreciation against the dollar has been slow. Will the pace of appreciation accelerate enough to satisfy American demands? If it does, will global imbalances disappear sooner?

It is hard to argue that the RMB is not undervalued, given China’s large and persistent current-account and capital-account surpluses. But, despite ending the dollar peg, faster appreciation of the RMB seems unlikely for the foreseeable future.