Goldman Sachs: We estimate that the CNY is at least approximately 20% undervalued - FJElite

The CNY is one of the most undervalued currencies in our G10 and EM coverage. A 60:40 average of our GSDEER and GSFEER metrics currently indicates that the CNY is about 20% undervalued versus the Dollar, after being close to 25% undervalued last year (Exhibit 3). While higher productivity in China versus its trading partners has been a key driver of the gradual strengthening in CNY fair value over the past few decades, the large current undervaluation emerged after the post-Covid inflation surge, when China’s lower inflation rate relative to the US made a larger contribution. Likewise, during this period, China’s deep competitiveness advantages developed over many years helped the current account surplus expand meaningfully relative to our model estimate of what can be considered sustainable.