The Electric Commentary

Thursday, July 21, 2005

China moves towards a free floating currency.

China has ended the practice of pegging the yuan to the dollar.

There certainly is a lot going on over there.

(Hat tip, Ace Cowboy)

Update: Dan Drezner has thoughts:

For the U.S., I'm not sure a two percent revaluation is going to affect trade one way or the other. The rule of thumb has been that a ten percent revaluation would lower the trade deficit by one percent, so this won't have that big of an effect on the trade balance (and I would wager that the J-curve effect with such a small revaluation will be longer-lasting). The bigger effect may be political, in that this could eases protectionist pressures in Congress. On the other hand, it could also convince yahoos like Senator Schumer that this is the way to pressure the Chinese into making foreign economic policy concessions.
And don't miss the linked Wall Street Journal article by Michael Phillips at the bottom of Dan's post. (You can get free access to the WSJ through his link.)

3 Comments:

  • Wow... this is like... a big deal. I guess they feel like their exports are strong enough to take the hit. Or maybe everybody's whining got to them.

    I'm glad that this will permanently take some of that protectionist nonsense that was floating around in Congress off the table - hopefully.

    By Anonymous Rashid Muhammad, at 10:07 AM  

  • It's only a 2 percent move though, just enough to make Schumer and Graham quiet down.

    Dobbs will still be fired up.

    By Blogger Ace Cowboy, at 10:45 AM  

  • I'm glad this happened after I went to China, as I'd be paying 2% more on everything. T-shirts would cost $1.23 instead of $1.21! So, philosophically a big deal, but not so big in terms of dollars. A good step, though.

    By Blogger Mike, at 10:54 AM  

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