Is China’s currency really undervalued?

A question from Yahoo! Answers:

China USD$1to RMB$8.20++ peg makes her economy powerhouse!!??
If USA doesnt do anything about .Your country position as superpower is numbered.China has an agenda….China workers are not underpaid,underfed or slaves…It is the exchange rate manipulation..wake up USA before being put to sleep! history repeat itself..Who once said the sun never set on her empires????

Let’s start at the end. “The empire over which the sun never sets” was Spain. Where is that empire now? Empires fall. Always. No exceptions. They waste their resources on military pursuits rather than on consumption and investment. History does indeed repeat itself, but not in the way you think…

As to the fair value of the RMB, there are arguments to be made that it is in fact OVERvalued, not undervalued as you claim. Inflation in China in recent years is consistently higher than in the U.S. (most recently, it was 5% vs. 2%), so RMB faces some downward pressure because of it. More importantly, unemployment in China is consistently higher than in the U.S.; every year, anywhere between 30 and 50 million people move away from villages, where they are made redundant by mechanization, into cities, where they try to make a living and have a mighty hard time at that…

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