Yuan currency myth

   Quite often, the Chinese government perpetuates the myth that it must undervalue its Yuan in order to create prosperity for China. This however is far from the truth. The reality is that China must undervalue the Yuan so that it can continue to post trade surpluses with the rest of the globe. Thus the goal is not to improve the standard of living in China but to create a positive currency surplus from trade with its global partners. In order to achieve this end, China must keep its population relatively poorer than its trading partners in order to perpetuate a trade surplus. China could choose to structure its economy to encourage exports and discourage imports, but that is an issue that lies outside of currency manipulation.

  If the RMB appreciated to levels that causes Chinese incomes to become equal to first world levels. China would be forced to post trade deficits much like the rest of the first world. As long as the RMB is undervalued to keep Chinese incomes at third world levels, then China like many third world countries will continue to post trade surpluses with its first world trade partners.

  It is hard to imagine who in China could ever benefit from this scenario. But whoever they maybe. It is certainly not the Chinese people. The only group of people who could stand to benefit from such a structure would be China's exporters. Even China's government officials could not benefit much from such a structure given that the president of China only makes 40,000 dollars a year as a result of an undervalued RMB. In contrast, due to a strong but subsidized dollar, presidents in the west make as much as 400,000 dollars a year.

  Hu Jintao no doubt enjoys perks that go beyond his official salary. But the same can be said for any government official in any part of the world. China may possess the world's largest foreign currency reserve, but at the expense of suppressing Chinese incomes between 2 and 10 dollars a day.