It is important to note what is actually meant by any unit of currency. The Renminbi represents one base unit of Chinese labor just as the dollar represents one base unit of American labor. From a very simplistic fundamental basis you have to consider two things - who could buy/sell renminbi (in size) and is the work provided by the average Chinese person going to be of increasing or decreasing value.

So, who has all the renminbi? Answer: the Americans. Why? Because the Chinese have sold renminbi to buy US dollar assets. Why do the Americans want renminbi? Wouldn't you want to buy more time from the people who do all your work? Why do the Chinese want dollars? Wouldn't you? Its like borrowing money interest free. Think about it. If you have a printing press that makes IOUs denominated in Chinese labor units, wouldn't you trade those in for USD that you can spend? As long as America owns Chinese labor and China owns USD, they both win. China isn't devaluing its currency any more than the Americans are devaluing theirs buy selling China USD. China is printing the renminbi that its exchanging for USD... and in retrospect (think bailout) the Americans are also printing the USD to match. The equation is balanced. Economically it is a tag-team approach to wealth protection. The world now has a choice: does it want to get paid in USD or Renminbi. That is: do you want to hold your wealth in US equities, US commodities, US land or Chinese consumables? The only other real options are the pound (once bitten twice shy - thanks George Soros) the Euro or the Yen. Well, holding yen bonds doesn't exactly make you a ton of yen since the BOJ lowered interest rates to nothing in a vain attempt to buy its dead cat market a 10th life. Ok, Euros? Well go ahead and bet on it if you like but it seems to me that the euro is the same old world assets with a shiny new label. They say there isn't an inflation problem in Europe but go buy anything other than liquor and cigarettes there and then tell me what you think. From an a priori logic perspective, why would I bet on the room full of people who can't communicate with each other? Europe invented the euro for this exact reason - they stand side by side and are light years apart from one another. The Rothschilds made their entire fortune running circles around European communication barriers.

Nope. The US is still king and it can't do the job without china. The Chinese workforce is only going to get more clever. Buying Renminbi is like buying a billion farmers bent on learning to make facebook apps for click revenue. I'm no programmer but I don't see Google giving up its position of top click revenue broker any more than I see Microsoft allowing a generic system for running exe files and China is going to continue to do all the work by making PCs increasingly entertaining and useful at relatively no cost to the west. If you think you can get a bargain in Chinatown now, just wait for the software to start rolling out. Sure, corners are likely to be cut along the way but mark this: China is and will be increasingly the source of our gadgets and technology will become our goal in life. Smart toasters, radios, cars, everything. China is the new land of turning nothing into something except this time, there is a declining premium on innovation. New "it" inventions are no longer worth something for years, they depreciate to nothing in months. The inventor is out of luck but the middle man remains the same. If you want to turn a pile of radios into a house, you need USD. And the US will continue to own China by selling them USD. Sure China can buy back their renminbi but it will cost them more USD then they have. Remember? The Renminbi is up over 20% vs. the USD since 2004! Where will China get the 20% extra USD to cover their sales and why would they when they can just print more?

There are many who say "But what about the trade deficit?"

To which I reply: yes it looks big but its not.

The US global merchandise trade and current account deficits hit annual rates of $900 billion in the fourth quarter of 2005, which amounted to 7 percent of US GDP, twice the previous record of the mid-1980s - http://www.petersoninstitute.org/publications/papers/paper.cfm?ResearchID=611

900 Billion dollars divided by 300 Million Americans is... $3000 per person per year. Yeah you know what? I'll spend my 3Gs a year to live the American dream. I know it and every Chinese worker trying to buy his way into the American dream knows it. And what about Europe? Europe chooses luxury goods where America chooses Wall Street. Europe's only client is itself. What has Europe done for me lately? Europe is the last sucker with high interest rates thinking a magic math equation against free yen will stir the economic pot. But surprise -- when your Japanese creditors don't trust you to pay back all the free yen you borrowed... you need to sell you Euros and buy back your yen shorts. That'll give the Yen a nice pop (and it did) but short covering isn't known for its bull market creating tendencies.

Let me know if I'm wrong.