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China revalues and floats currency

Friday 22nd July 2005

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China abandoned the 11-year-old peg of its currency, the yuan, and linked it to a basket of currencies.

The immediate effect is a revaluation of the yuan.

From now on, the yuan will be linked to a basket of currencies, the central parities of which will be set at the end of each day, The Economist reports.

And the currency has been revalued 2.11% to 8.11. While this is nothing like as much as the United States and others have been demanding.

The Economist says it was not clear exactly how the new system would operate. The Chinese called it a "managed floating exchange-rate regime", which may well imply more management than floating.

The fact that the Chinese have acted at all is important. But the eventual economic and political effects of the revaluation will depend on how far and how fast the yuan moves from now on, The Economist says.

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