While far too much attention is devoted to nominal exchange rates, it is often the real exchange rate that is of greater consequence. If one focuses too much on the significance of China's inflexible yuan nominal exchange rate, it may lead to the impression that China's real exchange rate is stationary or even irrelevant (which would be a false impression). Inflation is ramping up (see this story in today's NY Times) in China and this is clearly going to lead to a real appreciation (see below for the relationship between real and nominal exchange rates; P is domestic price level and PFor is the foreign price level).
e = (enom P)/PFor
In growth rate form,
Δe/e = Δenom/enom + ΔP/P – ΔPFor/PFor