China"s policy to keep its currency undervalued against the dollar gives the nation an advantage over its trade partners, a paper prepared by the staff of the Reserve Bank of India (RBI) said. “By keeping renminbi undervalued against the dollar and depreciating it in line with the US dollar, it invariably and distinctly provides competitive advantage over its trade competitors and trade partners including India," researchers S Arunachalaramanan and Ramesh Golait said in the paper that was e-mailed by the Indian central bank. The Group of 20 finance chiefs meeting in China this week held out the prospect of an enlarged global role for the yuan to encourage the government to free up a currency described by the US as “substantially undervalued." France"s President Nicolas Sarkozy and Finance Minister Christine Lagarde said work should start on including the yuan in the currency basket used for the International Monetary Fund"s Special Drawing Rights. “Given the fact that the policies of China are export-oriented, pro-foreign-direct investment and keeping the exchange rate undervalued, the emerging market economies which have allowed their currencies to float will have to face distinct issues in their management of balance of payments," the central bank paper said. India"s imports from China in the fiscal year through March 2010, was $30.7bn, more than the $11.5bn of exports, resulting in a trade deficit of $19.2bn, the paper said. “The empirical findings of the study clearly indicate that revaluation of renminbi will have an impact on the trade of India, particularly with higher elasticity for imports," the paper said. While the yuan touched 6.5456 per dollar in Shanghai yesterday, the highest in 17 years, American policy makers argue the currency remains weak enough to give China, the world"s biggest exporter, an unfair advantage in global trade.
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