http://www.econbrowser.com/archives/2007/06/the_treasury_re.html
Despite the difficulty in establishing misalignment, I do think it's in China's own best interests to allow a faster currency appreciation -- as opposed to the current policy trying to rein in the economy by tighter monetary and administrative policies.
On the other hand, Americans should not delude themselves that a more rapid realignment of the yuan will drastically alter the US current account and trade deficit.This is a point all too easily forgotten in the debate.
Finally, in my view the most important effect of faster yuan appreciation (along with the other East Asian currencies) might be related to diminished purchases of dollar assets, including Treasuries. Less demand for Treasuries, holding all else constant, results in a lower prices (higher yields).
