Former IMF Chief Economist Says China’s Currency Is Overvalued
Udumbara
While many economists criticize China’s long-term suppression of the RMB exchange rate and call for further appreciation, former International Monetary Fund (IMF) chief economist Kenneth Rogoff stands out, stating that the RMB is overvalued.
“If China were to allow its citizens to invest freely abroad, the currency would go down a lot. So in that sense, it’s still overvalued.” Rogoff told The Epoch Times.
Rogoff, a chair professor of international economics at Harvard University, served as the IMF’s chief economist from 2001 to 2003. He is an elected member of the National Academy of Sciences and the American Academy of Arts and Sciences, and consistently ranks among the most cited economists.
Rogoff’s assertion differs significantly from the views of many other economists.
Recently, as China’s massive exports have damaged manufacturing and economic growth in the United States and Europe, a growing number of Western economists and officials have urged Beijing to raise the yuan’s exchange rate.
For example, Brad Setser, a senior fellow at the Council on Foreign Relations, and Mark Sobel, a former U.S. Treasury official and current chairman of the Official Monetary and Financial Institutions Forum (OMFIF), wrote in a commentary that “the renminbi is hugely undervalued” and “it is high time for the authorities to promote strong appreciation against the dollar.”
Juergen Matthes, an economist at the German Institute for Economic Research, pointed out in a July 23 report that the “unfair” undervaluation of the yuan against the euro is a major reason for Europe’s trade deficit with China.
Setser and Sobel cited the IMF’s External Sector Report released this summer, which stated that China’s cyclically adjusted current account surplus in 2024 was 2 percent of GDP, 1.2 percentage points higher than the normal level. Based on this, the IMF estimates the RMB is undervalued by 8.5 percent.
Another IMF report made an even more aggressive assessment. Its October World Economic Outlook report revised China’s 2025 current account surplus as a percentage of GDP upward to 3.3 percent. If the IMF’s elasticity coefficient is used, assuming this estimate is broadly consistent with the cyclically adjusted surplus, it means the RMB is undervalued by approximately 18 percent.
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However, Rogoff argues that the IMF’s method of estimating currency value is inaccurate because it does not conduct historical longitudinal comparisons of trade surpluses.
“It’s certainly true that China’s running a big current account surplus, trade surplus. Today, it’s only about 3 percent of China’s GDP. ... In 2010, it was 10 percent of China’s GDP. But the Chinese economy has grown enormously over the past 15 years relative to the world. And so as a share of world GDP, China’s surplus is actually as big today as it was in 2010 paradoxically. ... I think it’s a little superficial to just conclude from that that the currency is wildly undervalued.”
Rogoff used an example to illustrate that judging currency value solely based on trade surplus is inaccurate.
“Europe has a massive surplus. Europe’s surplus is bigger than China’s, and nobody’s complaining about the European currently being undervalued. So, I think there are always people saying that [the yuan] is undervalued, but I’m not sure I agree. It really depends on what measure you’re looking at, what factors you’re looking at.”
Rogoff further pointed out that from some perspectives, the RMB is actually overvalued.
“If China were to open its capital markets more, there would actually be downward pressure on the exchange rate. That’s what happened in 2015 when money was fleeing China and China had to crack down on its capital controls.”
On Aug. 11, 2015, the People’s Bank of China (PBOC) announced a change to the RMB exchange rate mechanism, allowing market forces to play a greater role, resulting in a sudden one-off depreciation of the RMB by nearly 2 percent. This unexpected move shattered market expectations that the RMB exchange rate would remain stable or continue to appreciate, triggering widespread panic among Chinese households and investors. To protect their savings, Chinese residents and businesses attempted to transfer capital abroad, accelerating the existing trend of capital flight. According to the Institute of International Finance, nearly $700 billion of capital fled China that year.
The massive capital outflow from China, selling RMB to buy foreign exchange, put enormous downward pressure on the RMB exchange rate in the foreign exchange market. To stabilize the exchange rate and prevent a full-blown crisis, the PBOC sold off a large amount of foreign exchange reserves, resulting in a record decrease of $513 billion in those reserves in 2015.
Ten years later, a wave of capital flight is looming again.
Data from the State Administration of Foreign Exchange show that in July this year, domestic banks, on behalf of their clients, remitted a net $58.3 billion overseas for securities investment, marking the highest monthly outflow since records began in 2010.
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Over the past two years, China has experienced record capital flight, with foreign investors withdrawing at a rate unseen in decades. China’s sluggish economy has become less attractive to investors—a depressed real estate market, weak domestic demand, deflation, and the ongoing trade war with the United States. Furthermore, China’s strict regulations, state intervention, and market access policies in key industries have worried foreign investors.
Another wave of capital flight will lead to another depreciation of the RMB, something China is unwilling to see, as it is employing various methods to realize its ambition of making the renminbi an international reserve currency.
Beijing encourages trading partners to settle bilateral trade in renminbi, completely bypassing the U.S. dollar. For example, from September 2025, all trade between African countries and China will be settled in renminbi. China has also developed the Cross-border Interbank Payment System as an alternative to the Western-controlled SWIFT network, facilitating renminbi transactions outside of traditional channels.
Despite various efforts by China to promote the internationalization of the renminbi, one move has hampered its ambitions.
On Dec. 4, 2025, China set its daily reference exchange rate for the renminbi far below analysts’ expectations. The People’s Bank of China set the renminbi’s central parity rate against the U.S. dollar at 7.0733 yuan, 164 basis points lower than the average expectation of traders and analysts.
This gap between the central parity rate and expectations was the largest since February 2022. Bloomberg reported that this indicates the central bank’s desire to curb the renminbi’s appreciation. Furthermore, Bloomberg quoted an anonymous trader as saying that state-owned banks have been regularly buying dollars in recent weeks to slow the renminbi’s appreciation.
Why would China do something that undermines its ambitions to internationalize the renminbi? Rogoff said it’s because China has more pressing needs.
“China’s economy is in what we would call a growth recession. Growth has slowed tremendously. Unemployment is very high, particularly youth unemployment. So there’s very weak demand in China. I think there probably is scope to do much, much more to raise domestic demand, but China’s strategy has been to export its way out of its problems, and keeping a weak currency to the extent that they’re doing that is very helpful,” Rogoff said.
“So yes, they want to become a more international currency. They’re taking many steps, but President Xi has to deal with the here and now. And the problem is very high youth unemployment, rising unemployment more generally, still huge lingering problems from overbuilding and real estate and infrastructure,” Rogoff said.
In 2023, the unemployment rate for the 16-to-24 age group in China (excluding students) surged to over 21 percent, prompting the government to stop releasing monthly data and then revise it. Even so, the youth unemployment rate in August 2025 was still as high as 18.9 percent.
China’s decades-long investment-driven economy has led to massive debt accumulation among real estate developers, resulting in defaults by companies like Evergrande and Country Garden, severely impacting household wealth and consumer confidence. Local governments have financed large-scale infrastructure projects through off-balance-sheet borrowing, creating a debt burden of trillions of dollars.
“So I think right now, although, of course, the long-term goal is to make the yuan an international currency, the short-term goal is to stabilize the economy, and that has taken priority,” Rogoff said.
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