The ultimate aim of any modern corporate is growth with profit maximization. Growth is the first and foremost characteristic of nature and its products which include modern societies with all their industrial, agricultural and service sectors and above all the research organizations to cater to the needs of primary, secondary and tertiary sectors. Governed by the laws of the universe and nature, societies, markets and above all human life are in the constant churn of development in the realm of creativity and innovativeness.

The remarkable export growth in China has caused huge trade surplus with the US and other developed countries and in turn the Chinese foreign currency reserve has increased. There has been a continuous demand from the US to revalue the Chinese currency. Finally, China has revalued its currency. But the question is will it help the US to reduce the trade deficit? This article discusses the different facets of the Renminbi exchange revaluation and its impact on other countries.

In the early 1990s after the collapse of the Soviet Union, two separate paths have emerged with respect to the transition from the `command' economy to market driven economies. The path chosen by China is referred to as `Beijing Consensus'. There is no documentary evidence about the consensus but the results are visible to everybody. Since 1995, China has been following a `managed float' exchange rate policy, wherein the Chinese currency `renminbi' (Yuan) was pegged to the US dollar. In the 1990s many of the emerging economies have had devastating crisis when they tried to defend their exchange rate contrary to the market conditions. Today, China is through measured changes in its exchange rate policies and is trying to avoid repetition of history. The Chinese government has acknowledged on July 21 that its currency is undervalued and there is need for change in China's currency regime. China at last has adjusted the renminbi (RMB) peg to 8.11 per dollar, which is an increase of 2% against dollar. It has been adjusted from 8.31 to 8.11. Each day the RMB is allowed to move in the narrow range of +or _0.3 cr. China has decided to a managed float against a basket of currencies. China's policy is consistent with its macro economic in the last 25 years of taking up policy changes in an incremental manner. But such an incremental change in the agricultural sector, banking, manufacturing might be fruitful and possible and might be valid in currency market as it is difficult to control the speculative activity in these markets where speculative attacks on a currency are common. In order to understand why the present revaluation has less impact on the global payments imbalances in general and US current account deficit in particular, it is essential to understand the concept of "fundamental equilibrium exchange rate".

According to the IMF, "fundamental disequilibrium" is referred to as that exchange rate at which it is not possible to achieve basic macroeconomic objective of internal and external balance. Internal balance means non-inflationary full employment and external balance refers to desirable and sustainable balance of payments. An overvalued exchange rate would imply that the economy is either deflated or the country has unsustainable balance of payments deficit. In case of China it is the contrary i.e., the currency is undervalued as the country has a huge balance of payments surplus. Fundamental equilibrium is said to exist when neither of the above outcomes exist. China, until its recent revaluation, has been following an exchange rate policy that is unsustainable, as it is highly unstable. By keeping the value of Yuan against the dollar constant during a period when the dollar was depreciating, China was allowing its own currency to depreciate. It apparently looks that the Yuan is kept constant against the dollar but when the standard measuring rod (dollar) itself is depreciating, it would automatically mean that the value of Yuan is also eroding as it is pegged to dollar.

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