What’s on the horizon for the Chinese renminbi?

While the early weeks of 2005 ushered in modest strengthening of the U.S. dollar vs. the Euro, a major wild card remains on the currency horizon in the form of China. Throughout 2004, amid continuing weakness in the greenback, governments around the world pointed to the Chinese renminbi’s peg to the U.S. dollar as a potentially destabilizing global economic force. A potential revaluation of the Chinese currency vs. the dollar has long been a hot topic in the forex markets and is likely to remain so as long as the bears continue to dominate action in the buck.

While analysts and traders are divided on the likelihood of a potential revaluation for the renminbi in the first half of 2005, let’s take a look at the background leading up to the current situation. What form would a revaluation take, and what could it mean for the dollar and the other majors?