Dear James,

I've always been paid in USD, but have been considering switching to the RMB since its recent appreciation. Is this a wise move or am I better off keeping my greenbacks?

Thanks,

Currency Confused

Dear Confused,

As a wise man once said, “It depends”.

And, yes, that really does include surefire, can’t lose, cast-iron winners, like the yuan appears to be right now. The Miracle on the Han River, anyone? Expats based in Seoul in the mid-90s, who switched to the won before the Asian Financial Crisis, could only watch on helplessly as the South Korean currency fell from 800 to 1,700 per dollar.

The only thing history teaches us about currency is that nothing is certain. Yes, there are differences between South Korea then and China now, most obviously that the won did not have currency controls like the RMB has today. But, if anything unforeseen goes wrong in China, then the government will stop sounding even a little committed to long-term appreciation. The so-called currency wars of 2010 will seem a skirmish ahead of the real war of attrition.

So the lesson stands for the yuan in 2011 as for any other currency at any other time. I’m no China-denier, but that doesn’t mean the future is set. There are big unresolved questions: Is there already too much hot money in China? What will happen when 2009’s government-enforced lending starts to go bad? No one knows for sure.