What Should Be Done About Asia’s Undervalued Currencies?
What Should Be Done About Asia’s Undervalued Currencies?
Those who worry that the renminbi, yen, and won are undervalued vis-Ă -vis the dollar are usually focused on the large trade and current-account surpluses that China, Japan, and Korea run with the US. But coordinated intervention in currency markets will not address the fundamentals underlying these imbalances.
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CAMBRIDGE—Major Asian currencies’ exchange rates are again at the center of debates in international monetary economics. With China, Japan, and South Korea all running trade and current-account surpluses, and the United States running corresponding deficits, some argue that the renminbi, yen, and won are undervalued. But given the fundamentals underlying these imbalances, foreign-exchange intervention is unlikely to do much good.
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