Determining the “fair value” of a currency is notoriously tricky. Some analysts look at a country’s trade surplus or deficit; some at the local cost of goods or labor; and others at flows of investment capital. And whatever they conclude is a fair exchange rate, markets tend to go ahead and ignore it anyway.
The U.S. Treasury and a majority of economists think the yuan is undervalued, but after years of gradual appreciation a growing minority of experts have begun to argue that the currency could be close to equilibrium or even above it.
In its latest report on the world’s major economies, the International Monetary Fund reiterated its call that the yuan (also known as the renminbi) is undervalued by 5% to 10% – which goes to show that this isn’t an exact science.

But the Peterson Institute for International Economics thinks the yuan is just 1.1% below where it should be, a difference barely visible to the naked eye.
And the contrarians at Lombard Street Research, convinced that China is fundamentally losing competitiveness and that boatloads of capital are lining up for the exits, think the renminbi could be overvalued by as much as 15% to 20%.
Finally, the Economist examines currencies by comparing the price of a McDonald’s Big Mac around the world. The latest Big Mac Index, published last week, found the burger averages just $2.73 in five Chinese cities, compared with $4.80 in the U.S. That means the yuan is undervalued by a whopping 43%.
That will be little comfort to customers showing up under the golden arches this week, however. Thanks to a food safety scandal, some Chinese stores have run out of beef.
– Richard Silk. Follow him on Twitter@richardjsilk