WASHINGTON—A new study from the Peterson Institute for International Economics concludes that the dollar has again become seriously overvalued, principally though not exclusively, against the Chinese renminbi and some other Asian currencies. The “safe-haven effect ” that caused a move into the dollar last fall resulted in a dollar appreciation of about 10 percent, which on top of an estimated overvaluation of about 7 percent a year ago made for an overvaluation of about 17 percent at the point of comparison (March 2009). Although the dollar declined about 5 percent from March to early June, it remains substantially overvalued. The principal counterpart to the overvalued dollar is the undervaluation of the Chinese renminbi, which would have needed to appreciate about 21 percent on a weighted average basis and about 40 percent against the dollar to achieve equilibrium. The vast majority of the 29 currencies studied need to appreciate against the dollar. For example, the yen needs to rise to 82:1 against the dollar (as against 95 to the dollar recently) and the euro should appreciate to $1.53 (as against $1.40 recently). However, a large number of currencies show no great evidence of misalignment on an effective (i.e., trade-weighted) basis. This is true of the euro area, the United Kingdom, Japan, Korea, several Latin American countries, a number of Central and Eastern European countries, and several smaller Asian economies. Establishment of an exchange rate pattern conducive to macroeconomic equilibrium requires substantial dollar depreciation and substantial appreciation of the renminbi and some other East Asian currencies like the Malaysian ringgit
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