For years the Chinese renminbi has been the closest thing to a sure bet in financial markets. China’s rise over the past two decades to become the world’s largest exporter has generated enormous surpluses. The authorities imposed tight limits on the renminbi’s movements and invested massively in U.S. Treasuries to prevent those surpluses from driving up the currency. Still, the renminbi has gained 26.7 percent against the dollar over the past six years. The coming years could be a different story. China’s surplus has fallen by more than 70 percent since 2007, to 2.8 percent of GDP last year, as recession curbed overseas demand for Chinese goods and Beijing’s stimulus program sucked in imports. In April the government doubled the currency’s daily trading limit, to plus or minus 1 percent, suggesting that the market is becoming more of a two-way street. Renminbi convertibility, the Holy Grail of foreign investors and U.S. Treasury officials, may be the new smart bet. — The Editors
