Should China appreciate the Yuan

A little logic and a little evidence does not warrant the conclusion that the yuan should be appreciated. There has been no depreciation of the yuan in recent years to generate increases in China's exports and the total of China's and Hong Kong's exports to the U.S. has remained virtually constant. Nor does the U.S./China bilateral trade deficit, itself, reveal an undervalued yuan. China's exports to the U.S. are due to U.S. economic growth and, until recently, the effects of the euro/dollar rate in directing exports to the U.S. It is possible that China's exchange rate is below its optimal value as its foreign exchange reserves are quite large. Yet it would be understandable if the Chinese authorities were concerned about the potential volatilities of a floating exchange and of international capital markets and want to self-insure by maintaining large reserves. Keywords: China's exports, yuan appreciation. JEL Classifications: F31.