As many people have probably heard already, China said over the weekend that it would allow some "flexibility" in the yuan's value. Some key passages from the central bank's announcement:
In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People´s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.
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The global economy is gradually recovering. The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility.
In further proceeding with reform of the RMB exchange rate regime, continued emphasis would be placed to reflecting market supply and demand with reference to a basket of currencies. The exchange rate floating bands will remain the same as previously announced in the inter-bank foreign exchange market.
China´s external trade is steadily becoming more balanced. The ratio of current account surplus to GDP, after a notable reduction in 2009, has been declining since the beginning of 2010. With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist. The People´s Bank of China will further enable market to play a fundamental role in resource allocation, promote a more balanced BOP account, maintain the RMB exchange rate basically stable at an adaptive and equilibrium level, and achieve the macroeconomic and financial stability in China.
According to the NY Times:
The first sign of how much currency appreciation will be tolerated is likely to come Monday morning, when the Chinese government will set the initial trading band for the value of the renminbi in Shanghai trading.
Well, it's still Sunday night (where I am), so perhaps I should wait to see what happens tomorrow before I say this, but I think it's very possible that this action is intended to defuse tension before the upcoming G-20 meeting, and the back and forth between China and the U.S. will pick up again soon after.
[ADDED: I just saw this:
China's central bank set the yuan's daily mid-point at 6.8275 against the dollar on Monday, unchanged from the mid-point on Friday, after announcing on the weekend that it would allow the yuan to trade more flexibly.
]
Here are some news links from over the weekend:
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China: Yuan can float, but it's not expected to go far - USATODAY.com The impact of China's decision to allow its currency to likely appreciate will be driven by how fast and how big the changes are.
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Chinese say they intend to free up their currency BEIJING -- Facing growing pressure from around the world, China's central bank announced Saturday that it is prepared to allow the country's currency to float more freely against the dollar and other foreign currencies, potentially raising the cost of Chinese goods.
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BBC News - Obama welcomes China's move towards flexible yuan US President Barack Obama has welcomed China's announcement that it will allow the exchange rate of its currency, the yuan, to become more flexible.
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Japan welcomes China's currency move Japan welcomed China's announcement that it would make its exchange rate more flexible, expressing hopes that the move will encourage the stable growth of the global economy.
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China forex move could thwart U.S. hopes - Roubini | Reuters June 19 (Reuters) - China's decision to move away from its currency peg might mean the yuan weakens against the dollar instead of strengthens as Washington wants, Nouriel Roubini, one of Wall Street's most closely followed economists, said on Saturday.
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FT.com - Study to stir dollar-renminbi debate China’s currency is considerably less undervalued against the US dollar than it was six months ago because of the cut in the Chinese current account surplus, according to research by two US-based academics.
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US current, proposed law on currency manipulation | Reuters (Reuters) - China's central bank said it will gradually make the yuan's exchange rate more flexible, signaling a resumption of its rise in value and an end to a nearly 2-year-old peg to the dollar.
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U.S. Senator Schumer Calls China Yuan Statement Vague, Limited - BusinessWeek June 19 (Bloomberg) -- U.S. Senator Charles Schumer said he will continue to press for trade sanctions against China unless the country soon offers details about when and how it will allow its currency to rise.
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China currency move overdue, more needed -Grassley | Reuters June 19 (Reuters) - The top Republican on the U.S. Senate's tax-writing committee on Saturday called China's yuan move overdue and said the United States should continue pressing for the currency to appreciate in value.
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China Signals End to Yuan’s Two-Year Peg to Dollar Before G-20 - BusinessWeek June 20 (Bloomberg) -- China said it will allow a more flexible yuan, signaling an end to the currency’s two-year-old peg to the dollar a week before a Group of 20 summit.
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China Says It Will Increase Yuan's Flexibility - WSJ.com BEIJING—China's central bank moved Saturday to head off resurgent international criticism of its currency policies with a pledge to make its tightly-controlled exchange rate more flexible, a surprise announcement that was quickly welcomed by the U.S. and others even though the central bank also ruled out a big rise in the yuan.
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China Signals a Gradual Appreciation of Currency - NYTimes.com HONG KONG — China’s central bank announced on Saturday evening that it would allow greater flexibility in the value of the country’s currency, in the clearest sign yet that China will allow the renminbi to appreciate gradually against the dollar.
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China currency move 'encouraging development' -Hoyer | Reuters June 19 (Reuters) - China's decision to make its exchange rate more flexible is an "encouraging development" that hopefully will lead to further changes, U.S. House Democratic Leader Steny Hoyer said on Saturday.
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China to allow more exchange rate flexibility - Yahoo! News BEIJING – President Barack Obama welcomed China's announcement Saturday that it will allow a more flexible exchange rate for its currency, saying it would help protect the economic recovery
