China Delinks Currency From U.S. Dollar

The White House hailed the announcement but said it would monitor the plan’s implementation.

China’s central bank immediately allowed the yuan to rise from its current 8.28 to the dollar to 8.11. The central bank said the shift would improve the running of the economy because the new exchange rate, a 0.3 range, would be more flexible and responsive to market supply and demand.

“The most important thing is the change, not how much it changed,” said Li Yang, a senior economist with the Chinese Academy of Social Sciences in Beijing.

The move, which analysts consider fairly moderate, could be in anticipation of President Hu Jintao’s September visit to the United States. While the change may not have a huge economic impact, it could help alleviate a major point of contention between the United States and China over trade.

“China’s leaders are convinced that this makes sense for China, but if it makes the U.S. happy that’s an extra benefit,” said Fred Hu, a managing director at Goldman Sachs in Hong Kong. “They could have done this today, they could have done this yesterday or tomorrow. They have planned this move very carefully. It signals a genuine desire to placate U.S. concerns.”

The Bush administration has already shown approval for the value change. “We are encouraged by China’s announcement today that they are adopting a more flexible market-based currency system,” said Scott McClellan, President Bush’s press secretary.

The administration has been pushing China to increase the yuan’s value, saying an artificially low exchange rate has kept Chinese goods on the market cheap and has given China an unfair leg-up on the international market.

While more steps must be taken before the yuan can have freedom to float, this first step could already improve China’s trade relationships with other nations. But some analysts are skeptical that those additional measures will occur.

“It’s just a gesture. The question now is whether there will be continuing speculation that China may revalue even more,” said Ben Kwong, an analyst from KGI Asia in Hong Kong.

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