'If China sharply revalued the yuan, as American politicians are demanding....

...., it could actually hurt the US and help China.'

Myth 1 - that there is overwhelming evidence that the yuan is grossly undervalued
Myth 2 - a re-evaluation ... would greatly reduce America's trade deficit

China needs to cool its asset markets with higher interest rates. To regain control over its monetary policy China needs to let the yuan rise. A revalutation could also help the government succeed in shifting the balance away from growth to investment and net exports towards consumption.

America is right that China needs to revalue, but for the wrong reasons. And arguing that a revaluation helps America's economy makes it less likely that Beijing will act. Likewise China is foolish to resist a more flexible exchange rate partly because it does not want to be seen to be caving into America's demand, when it is in its own interest. If the two world's engines of growth remain at loggerheads, everyone will pay the price.'