If the Chinese currency is currently undervalued, should we be buying it up…?
and waiting for the Chinese government to let it go to free trade? From what I’m reading, most economists and policy makers in both the US and China agree that at some point China will have to revalue to avoid a catastrophic global imbalance. If I were to buy a large sum of Chinese currency now and sit on it, when they revalue, it should shoot up in value…. Right now the Chinese government has artificially locked the exchange rate in at $1 to 6.82yuan (or 1 yuan=$0.14). If it is allowed to revalue, it is expected to settle in closer to $0.19 per 1 yuan. So, if I buy $5000 now, I get 34,131.50 yuan. If I hold it and wait for it to revalue (at about $0.19=1yuan) and then re-exchange it, I would have $6485… a profit of $1485 (29.7%)… Too good to be true or am I missing something?
I got the $0.19 figure by reading various articles that quote both US and Chinese economists. This figure ($0.19) is right smack in the middle of their estimates of what the Chinese government is ‘expected’ to do…. but I realize it IS just a guess.
May 12th, 2010 at 9:49 am
Chinese currency prices are determined by the government. You can not predict what the leaders of China will do, or when. China is facing a real estate bubble in the very near future. Speculation based on any commodity that is arbitrarily controlled by a government with no real market input into the decision making process is inviting potential disaster. I believe China will slowly loosen the price of their currency to allow the populace to purchase foreign products at more reasonable prices, but not until the leaders achieve total self sufficiency of China for manufacturing, autos, energy,etc.. Government paranoia of all things foreign corrupting the people will prevent them from free floating their currency anytime soon.
May 12th, 2010 at 9:49 am
On C-SPAN I heard that the U.S is pressuring China to raise the value of its currency. The person on C-SPAN said this has happened before, and it will happen again. It wasn’t specified exactly how much it will go up. I don’t know where you get the $0.19 figure. Also, it’s unclear when exactly this will occur, but the impression I got was pretty soon, perhaps some time in the next month, or two, and definitely some time this year. Another thing you can count on, is that there is virtually no chance you will lose any money making this bet. It’s possibly the least risky bet someone can make.