CPA, in its July 15, 2008 Issues Forum, released two new reports on currency misalignment.  Collectively, the reports answer these questions:

1.   How do you measure currency misalignment?

2.   What difference does it make?

The first, Estimation of the Fundamental Misalignment of the Chinese Renminbi by the China Currency Coalition, describes the most reliable way to calculate Asian currency misalignment today.  Using the same methods adopted by the International Monetary Fund, the report finds that the Chinese Renminbi is undervalued by 35%.

The second report, authored by Charles Blum and Donna Tung of IAS Group, is entitled "Appreciation of the Renminbi: What's Happened -- And What Hasn't".  The document outlines the impact of the undervaluation to answer the "Why does it matter?" question. 

"While remnimbi has been allowed to appreciate modestly since 2005, that revaluation has been grossly inadequate,"  Charles Blum, CPA board member, said.  "This undervaluation poses real risks to the world economic system." 

From the second report:

These data depict an alarming situation that in many ways is worsening rapidly. It is undoubtedly true that, absent the real appreciation that has taken place since July 2005, things would be that much worse. Nonetheless, it seems incontrovertible that the initial revaluation and the subsequent appreciation of the renminbi over the past 36 months have been grossly inadequate. The “intended consequences” of a revaluation – more consumption-led growth, lower inflation, reduced trade imbalances – have not yet materialized. The unbridled growth in reserves, in particular, poses a threat to the IMF’s objective of “continuing development of the orderly underlying conditions that are necessary for financial and economic stability.”