An Analysis of a Chinese Renminbi Appreciation Through the Lens of the Plaza Accord and the Japanese Yen

China’s currency policy has been one of the most hotly debated subjects in the United
States (U.S.) over the past decade. U.S. citizens commonly believe that the peg of the renminbi (RMB) to the U.S. dollar (USD) causes Chinese employment and exports to boom at the expense of the U.S. export industry and its workers. China today faces criticisms similar to those faced by Japan thirty years ago, when the yen (JPY) widely was considered undervalued against the USD. Our analysis will use a handful of models and empirical evidence from the Japanese experience with the Plaza Accord to discuss the dangers posed by the appreciation of a creditor country’s currency. We will examine key ways in which the past Japanese economy was similar and dissimilar to the more recent Chinese economy to determine which of our findings related to the Plaza Accord are applicable to China’s case. We will end with a study of the international USD standard, and will propose policy solutions to the global imbalances discussed in earlier sections.