HOW STRANGE IT is that only a year or so ago some people were still expecting a devaluation of the yuan and now all the talk is of revaluing its fixed exchange rate to a stronger level. Officialdom in Beijing earlier pooh-poohed the talk but, with a new chief at the central bank, who knows for sure?
Let us get some things straight about the yuan's exchange rate, however. First, it is not pegged. It is rigged. A peg implies a formal currency board arrangement with all its disciplines of full backing against another currency and of central bank pledges to deal with all comers at a fixed rate and to leave adjustments of money supply to an interest rate arbitrage mechanism.
We shall skip the technical details of this. The point is that Beijing does nothing of the sort. It adjusts the yuan's exchange rate through market intervention and limits its needs to do this by maintaining capital controls. An adjustment of that rate would be nowhere near as momentous an event as an adjustment of Hong Kong's US dollar exchange rate would be.
Secondly, it is worth bearing in mind the longer-term history of the yuan's exchange rate to the US dollar. It has been rigged at its present rate for about eight years but before that had a record of frequent devaluations. The chart shows you that record over the last 20 years in the red line.
It also shows you in the blue line what the yuan's US dollar exchange rate would now be if it had been determined over the last 20 years only by the amount that China's inflation rate exceeded inflation in the United States. That rate would now be 3.23 rather than the official 8.27, obviously much stronger.
Just as obviously, this is not the only thing that determines a country's exchange rate.
The point of this chart is only to tell you once again that a revaluation would not be a ground-shaking event, particularly if Beijing keeps its capital account closed.