Is Goldman Sachs (NYSE:GS) Right that Chinese will Increase Value of Renminbi?

The announcement by China that President Hu Jintao will be visiting Washington in a couple of weeks makes one wonder if the idea thrown out by Goldman Sachs (NYSE:GS) that the Chinese were ready to increase the value of the renminbi is going to come about.

Goldman had stated recently before they knew Hu was coming to Washington that the Chinese were likely to allow the renminbi to appreciate slightly sometime in the next three months. They based their assertion on communications with the Chinese increasing about whether to allow the renminbi to rise or not.

The Chinese have said in the past that they’ll allow the renminbi to go up again when the timing is right, and not before that. So the fact that Hu is coming to Washington doesn’t necessarily signal the Chinese currency will increase in value, but that Hu may be coming to for some damage control and to pressure Washington to tone down their rhetoric on naming China as a “currency manipulator.”

Interestingly, while the media have grabbed  hold of this story and assumed the renminbi is undervalued in order to create the illusion of a looming currency battle, analysts in fact are all over the map with their views on the value of the renminbi, with every position representing, including some who feel it’s overvalued. The idea of being overvalued comes from Chinese citizens not being allowed to trade the renminbi for other currencies by the Chinese government.

The challenge of floating the renminbi, according to the Chinese, is they would have to become more assertive in selling assets denominated in the U.S. dollar, which could have a negative impact on the markets.

There is no doubt the Chinese will eventually allow their currency to float more, as they’ve stated they will. It’s more related to timing than anything else, and even with Hu’s visit, there’s no guarantee it’s going to happen quickly, although we’ll probably see the rhetoric from the U.S. decrease and a time-frame when the renminbi will be allowed to float revealed by the Chinese.