Will China re-value the renminbi?

One of the big issues over the next year may be a more flexible exchange rate policy in China. From an international perspective, there seems to be a case for a stronger renminbi. But will China re-value?

The renminbi CNY has been under appreciating pressure, as seen in China's surging foreign exchange reserves, due to strong capital inflows and current account surplus. The sharp and steady decline in the CNY non-deliverable forwards reflects increasing confidence in the CNY, and hence reducing its risk premium, which fell to negative levels at some point recently see chart. Anecdotal evidence also shows that the CNYUSD black market rate had appreciated above the official exchange rate.

Falling Chinese Premium

The CNY's underlying strength is putting the Chinese authorities in a policy dilemma. On one hand, they are under increasing pressure, especially after entry to the World Trade Organisation WTO, to speed up financial and...

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