China's currency, the yuan, has been pegged at 8.28 yuan per one U.S. dollar since 1995. After a Chinese manufacturer sells a widget to a U.S. importer and earns a U.S. dollar, he or she must convert the U.S. dollar to yuan at a Chinese bank, because the Chinese government forbids the circulation of U.S. dollars anywhere within China. The bank will give the exporter 8.28 yuan for that dollar no matter how much the world currency markets say the U.S. dollar is worth that day. Since many economists estimate that one U.S. dollar should be worth about 4.9 yuan, the Chinese government is effectively undervaluing its own currency by about 40%.
contd. here.
posted by Congressman Tim Ryan, guest blogging at The Agonist.