Is China manipulating its currency? The Big Mac and Mini Mac indexes disagree.

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http://www.pbs.org/newshour/making-sense/china-manipulating-currency-big-mac-mini-mac-indexes-disagree/

Editor’s note: “China is a currency manipulator.” It’s a charge that’s been leveled for years and has prompted politicians, most recently President Trump, to threaten punitive retaliation.

The argument is that China keeps its currency artificially cheap, so it can export cheaply to the rest of the world, thereby keeping Chinese workers employed making the exports. We’re working on a NewsHour segment to explain all of this. It should air soon.

But in the meantime, is the Chinese “yuan,” also known as the “renminbi” or “people’s money,” artificially cheap or isn’t it? And how could you tell?

One approach is to look at something that’s sold the world over, like a Big Mac — something that consists of standard ingredients that can be bought on international markets. The ingredients should cost the same everywhere. So if the price of a Big Mac in China is much lower than the identical product in the U.S., that would suggest China is making goods in China artificially cheap by depreciating its currency.

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