In the wake of the asian financial meltdown, experts predicted that China would devalue the renminbi. So did traders: Currency forwards priced in a significant devaluation. I didn't jump on that bandwagon. Indeed, the title of my Sept. 6, 1999 column, "Why China Won't Devalue," indicated my contrary call. And the right call it was. The exchange rate of 8.28 renminbi to the dollar hasn't budged since 1995. That fixed exchange rate doesn't suit everyone, however. Led by the U.S., a chorus of countries is loudly demanding that China ratchet up the value of its currency against the dollar. Such a revaluation is intended to make Chinese exports more expensive and less competitive. The Chinese authorities have politely demurred, but most experts think they will eventually succumb to international pressure. The markets agree. Hot money continues to flow into China, and the currency forward markets are pricing in a 5% renminbi revaluation against the dollar during the next year. Once again, I think the experts and the markets will be caught wrong-footed.
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