Economics of the yen and the renminbi
In the 1980s, the most common threat to the economic hegemony of the United States was Japan, which was feared for its growth and the competitiveness of its industry. There was an outpouring of research evaluating the Japanese threat. The dollar was deemed too strong, and the yen and the Deutsche mark too weak. Robert Lawrenceís 1984 book Can America Compete? was a must-read. In 1985 came the G-5 Plaza Agreement, which increased the value of the yen more than 100% in a matter of a few years. At its peak, in 1991, Japanís income was 43% of US GDP. Japanís growth slowed to a trickle thereafter, and starring in the mid-1990s begins the story of Japanís lost decades Ö
The situation with China could not be more different. It is very likely that the renminbi is more undervalued by an order of magnitude than at the peak of the undervaluation of the yen or the Deutsche mark in the 1980s. Chinaís current account surplus is also significantly higher than that of either Germany or Japan at the peak of their respective experiments with mercantilism. Most important, Chinaís growth rate, relative to its own trend, is also significantly higher. Indeed, China hit its peak growth rate just a few years ago. In comparison with an average overvaluation of the yen by 9% during 1976-85, and an average overvaluation of the Deutsche mark
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