Nobel Prize winner Robert Mundell believes substantial appreciation of the renminbi is no good for China. He says it would be devastating, and the worst possible outcome for the country.

He says the hot money which is being attracted by expectations of a stronger currency, will make the trade surplus worse. Mundell suggests China lower tax or increase income to improve the consumption portion of China's gross domestic product. But he says appreciation of around 2 or 3 percent won't do much harm. And may even do some good by tempering inflationary pressures.

Mundell also says it's a big mistake for the International Monetary Fund not to include the Chinese currency in the international reserve basket, in its recent reevaluation of the content of SDRs.