Rob Annabat from SeekingAlpha predicts a rise in the value of the Chinese Renminbi against the dollar. Why? His reasoning is that China is slowly allowing its currency to appreciate against the dollar from8.15 RMB to the dollar in July 2006 to 6.83 to the dollar in July 2008. Incidentally, China claim that they have a floating exchange rate but it it far more likely that they employ some sort of peg. The artificially low value of the Renminbi was to keep Chinese goods cheap and increase the sale of their goods overseas.

The following are from the article “Renminbi / Dollar: A Peg No More?” by Rob Annabat, published in Seeking Alpha on March 10th, 2010.

Although the policy makers in Beijing had been allowing the RMB to slowly appreciate for several years—it was 8.15 RMB to the dollar when I moved to China in July of 2006—the peg was an obvious protectionist move to help stem the flight of foreign buyers of Chinese goods when the Western economies began to edge towards recession. And Western policy makers, who are keen to restore demand within their home markets, have been crying foul ever since.

But perhaps my mornings will once again be graced with some variety and Ben Bernanke can gripe about something else. China’s Central Bank director recently acknowledged the peg as a temporary remedy for the first time since its implementation. Those who are familiar with the subtleties of Beijing’s political signaling will recognize this as potentially preparatory for a loosening of the currency control, which would most certainly lead to the RMB’s continued rise against the dollar, and help to improve the massive trade imbalance between the US and China. Why, you ask, am I so certain that the RMB should rise, as opposed to fall?

There are many arguments, but perhaps the most concise, and certainly the drollest, is the one made by the Economist’s Big Mac Index, which asserts that were all currencies valued properly, a McDonalds Big Mac—which is taken as a homogenous commodity sold in 120 countries—would cost the same in any currency. Noting that a Big Mac sold in the US today costs $3.57, the current price of a Big Mac in China—a mere RMB 12.5 ($1.83)—points to the RMB being undervalued by nearly 50%!

So absent a matching pay raise, it looks like my Happy Meals in China are going to become more pricy. But what more profound …

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