For some time now, American officials and academics have been discussing a possible revaluation of China’s currency, the renminbi, as I wrote in this post from a year ago. The Chinese renminbi has been kept to about 6.83 per U.S. dollar for nearly 2 years.

According to some government officials and Asia-watchers, the current (low) value of the renminbi is at least partly driving the ever-growing trade imbalance between China and the U.S.

Peter Morici, a professor at the University of Maryland and former chief economist at the U.S. International Trade Commission, estimates that the yuan is undervalued by about 40 percent. In 2009, the U.S. imported nearly $300 billion worth of goods and services from China, while sending just $70 billion the other way, according to the U.S. Census’s Foreign Trade division.

Now, it appears that those hoping for a revaluation of the renminbi (also referred to as the yuan) may get a bit of their wish. According to the New York Times, the Chinese government will allow its currency “to strengthen slightly and vary more from day to day.” “It’s highly likely that the yuan will be revalued by the end of the year,” adds Julie Hazen, principal with Chicago-based Treasury Strategies, Inc. The markets – specifically, the nondeliverable forward market, which is the main instrument for hedging the yuan – already are accounting for a 3 percent bump in its price, she adds. (A nondeliverable forward is a cash-settled, short-term forward contract on a thinly traded or nonconvertible foreign currency, according to Investopedia.)

Any shift in the value of a currency creates winners and losers, at least in the short run. Companies that import from China can expect a direct hit to their expenses. Companies that export from the U.S. may see a bump in sales, as their products and services will be relatively less expensive. However, this effect likely will be less profound than the hit that importers will take, Hazen predicts: “U.S. exports are expensive for a number of reasons. I don’t see a substantial positive uptick,” as a result of any yuan revaluation.

Even so, from a macro-economic view, a decision by Chinese officials to loosen their control of the renminbi will be positive, Hazen notes. First, the move may signal a willingness on the part of the Chinese to open the economy, even slightly, to global market pressures. A stronger yuan also means that as China purchases U.S. dollars (after all, they’re Uncle Sam’s largest foreign creditor), it will be paying for them with a stronger currency. The U.S.’s own debt will be lower, since greenbacks will have fallen in relative value. “I see far more winners than losers,” Hazen adds.

Treasurers whose companies do business in China will need a thorough understanding of their exposure to fluctuations in the renminbi, says David Stowe, director with Strategic Treasurer in Atlanta. They’ll want to develop a plan to manage the risk, whether that means exploiting natural hedges or using hedging instruments.

In addition, treasurers should understand how a shift in the currency’s value will impact operations. For instance, a company that currently sources heavily from China may find that it pays to develop suppliers in other countries. The goal is to manage against the uncertainty and fluctuations, rather than trying to forecast just how a currency will move, Stowe adds. ###