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Friday, July 22, 2005

China Initiates Restricted Float

Obviously by now this isn't news. I posted a bit more yesterday on A Fistful of Euros. Andy Mukherjee has a good summary of the situation:

The first change in the yuan's exchange rate in a decade isn't going to cool the overheated Chinese economy, nor will it narrow the U.S. trade deficit, or satisfy New York Senator Charles Schumer who wants to slap punitive tariffs on China.

Thus, the diplomatic case and the economic rationale for a stronger yuan are as valid as they were before the revaluation.

Meanwhile, there's a crack in the door: Now that Beijing has gotten over its reluctance to give up the dollar anchor, it may find further revaluations politically easier to do.

The decision to manage the yuan against a Singapore-style currency basket shows that within China those who favor a market- oriented approach to macroeconomic management are gaining an upper hand in policymaking.

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