## Tuesday, May 12, 2009

### Benefits of exchange rate flexibility

Writing in Financial Express, Ila Patnaik looks at the revenues of Indian vs. Chinese exporters.

#### 2 comments:

1. "....now it does not have the legitimacy to allow the currency to be set by market forces and consequently to depreciate."

Somehow I find this hard to believe - that China is actually buying yuan to keep it strong despite market forces in the other direction. Surely demand for Chinese exports is more influential compared to capital outflows and thus there is appreciation pressure in the market. If anything, it looks like they are selling yuan to decrease the rate (/smooth) of appreciation. PPP as of FEB 2009 shows the yuan to be overvalued.

Question is, what has Ila seen that I haven't?

2. Apologies - I meant the yuan looks undervalued from PPP point of view.

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