Two separate high-level forums in Washington Wednesday addressed the ticklish issue of China's exchange rate policy and whether its currency should be revalued against the dollar.

With U.S. manufacturers moving jobs to China and the American trade deficit with China soaring there has been mounting pressure on the Chinese to permit their currency to rise against the dollar. The argument is that China is gaining a trade advantage by keeping the yuan artificially weak at an exchange rate that has been unchanged for a decade.

Larry Lindsey, who until a year ago was a top economic advisor to President Bush, told a Center for Strategic and International Studies panel that the Chinese need to let the market determine the yuan's exchange rate. "The status quo is untenable in the long run," he says. "But it is equally true that the Chinese themselves do not view themselves, their economy or their political structure as sufficiently mature to handle the rigors of a market- determined exchanged rate."

Mr. Lindsey suggests that China's economic miracle may not last, in large part because it is still a totalitarian state that blocks the free flow of information essential to a well functioning market economy.

The Bush administration is pressing the Chinese to let the yuan float, that is to permit the market to determine the exchange rate. Nicholas Lardy, a researcher at the Institute for International Economics, agrees that this is a laudable longer-term goal. But he favors a once only revaluation to offset the pressures of a rising trade surplus and huge inflows of foreign currency. If the currency is cut loose to find its own value, he worries it may actually decline against the dollar.

"The net result might be first of all a domestic banking crisis and secondly the possibility, and I would say the probability, that the currency would depreciate if they move prematurely to floating," says Mr. Lardy.

Mr. Lardy, a long-time specialist on China, told the American Enterprise Institute that huge inflows of foreign exchange have contributed to an unsustainable lending boom by Chinese banks. "The Chinese banking system is, by international accounting standards, massively insolvent. And I underscore the word massively," he says. "I will argue at the end of my remarks that it is likely over the medium term to become even more massively insolvent because of what has been going on over the last three or four quarters."

China is by all accounts Asia's and the world's most recent economic success story. Millions have been lifted out of poverty during the past 25 years of market-based reform. The economy has been growing at a steady seven to eight percent per year. Exports are booming. And China has been attracting more foreign direct investment than any other developing country.

Analysts say the foreign attention now being paid to the exchange rate is a measure of the country's success and its growing international significance.