China's exchange rate policy has been involved in a hot debate in recent years. Most economists believe that Chinese currency, Renminbi (RMB), has been significantly undervalued. Since the bilateral trade between China and the US has been increasing dramatically over years, US officials blame that China is unfairly benefiting from the trade surplus partly by fixing the exchange rate. This paper reviews the exchange rate policy debate and examines the impacts of the real exchange rate between the RMB and the US dollar on the bilateral trade between the two countries.
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