The International Comparison Program (ICP) is an international statistical activity jointly implemented by the United Nations Statistical Commission, the World Bank and other international organizations. The aim is to eliminate the impact of exchange rate fluctuations on the global currency ratio, and to measure the difference in the price level within each country by using the amount of currency required to pay for goods and services within each country, and to obtain a new ratio after purchasing power conversion.
The new exchange rate refers to the new purchasing power of each country's currency relative to the US dollar. Through the results of the International Comparison Project, we can obtain the purchasing power conversion factors of different currencies and thus reassess the size of the economies of each country. This data can accurately measure the purchasing power and economic power of different countries, which is of great significance for the changes in the global economic pattern.
According to the latest survey results, the purchasing power exchange ratio between the Chinese and the US dollar is expected to reach about 4 to 1. According to World Bank data, the purchasing power conversion factor between the Chinese RMB and the US dollar in 2022 is 399, indicating that the purchasing power in China is equivalent to $1 in the United States. In terms of purchasing power parity, China's economy will surpass that of the United States to become the world's largest economy.
In an article, the Financial Times pointed out that there is a distorting effect in the exchange rate, often overestimating the real purchasing power of the US dollar and underestimating the purchasing power of some developing country currencies, such as the yuan, the Russian ruble, the Indian rupee, the Indonesian guilder, the Vietnamese dong, the Brazilian real, etc. If the size of the U.S. and Chinese economies were reassessed based on the conversion factors between the real purchasing power of their currencies, China would overtake the United States to become the world's largest economy.
Stephen Brooks, a professor at Dartmouth College in the United States, expressed a similar view, pointing out that China's nominal GDP is only about 70% of that of the United States at exchange rates, but in purchasing power parity terms, China's GDP will surpass that of the United States. He believes that the reason why the United States has been able to maintain its No. 1 position is that the US dollar is a strong currency, and many countries are vying to demand it, which has enhanced the international status and exchange ratio of the US dollar. But if the current international position is no longer maintained, the position of the United States and the purchasing power of the dollar are likely to decline.
The new round of data surveys for the International Comparison Project is coming to an end, and according to the projected results, China's GDP will surpass that of the United States to become the world's largest economy. This result has sparked concern and discussion in the international community, with some people disagreeing on the significance of the new exchange rate and the use of different calculation methods. Regardless, however, this result shows that China's economy is growing in strength and has a profound impact on the global economic landscape.
Personally, I believe that the introduction of the new exchange rate helps to assess the economic strength of countries more accurately, avoids the impact of exchange rate fluctuations on the relative price, and more objectively reflects the level of purchasing power of countries. China's rapid economic growth has become the focus of global attention, and its GDP surpassing that of the United States will further demonstrate China's economic power and influence. However, I also recognize that economic size is not the only measure of a country's overall strength, and other factors such as per capita income, innovation capacity, and social welfare are equally important. Therefore, challenges and opportunities remain in China, and sustained efforts, reform and innovation are needed to achieve sustainable development.