Foreign experts have begun to call for China to float its currency en masse. Given my line of work, I obviously cannot claim to be impartial in the debate over the Yuan's pegging to the dollar. As long as the Yuan remains relatively weak, the Chinese products I move into the U.S. remain cheap. American manufacturers, however, are desperate for a change as it makes their exports to the huge Chinese market extremely expensive for Chinese consumers. Pundits, including those at the Economist magazine, claim the Yuan may be undervalued by as much as 40 percent. Currency traders therefore see this as an opportunity to make a 40 percent return on the dollar by buying up the Yuan and waiting for the Chinese government to float their currency on the open market. As talk of a currency revaluation picks up, more and more people are converting dollars into Yuan. Not surprisingly, many of these people are the "experts" we see commenting on the need for China to float its currency. As more people move their money into Yuan, it will become harder for the Chinese to sustain the peg.

I experienced a similar situtation in 2001 when I was traveling in Argentina. The Argentine Peso was pegged to the dollar also, one to one. If you went to a currency exchange, you'd get one peso for each dollar. Yet if you traded on the streets, you'd get 1.4 pesos to the dollar. Such black market irregularites are a clear sign of an impending monetary crisis. Sure enough, while I was there the government essentially collapsed, devaluing the peso as it went. If we start to see similar signs, with the Yuan being traded for more than a dollar, that would be the clearest sign of an impending revaluation. At that point, its full tilt ahead, put all the dollars you can into the Yuan. And while I like to be as open and helpful as I can through this blog, I am not going to report this type of thing. I'll just put all my money in and let it ride....