The article that I am summarizing was published in “The Economist” on July 21st 2005 “The revaluation of the Yuan.
How far will it go?” China has revalued its currency, the Yuan, and linked it to a basket of currencies. By itself, this will do little to slow the economy, but it may ease trade tensions. China abandoned the 11-year-old peg of its currency, the Yuan, at 8.28 to the dollar. 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 and the currency has been revalued, although by nothing like as much as America and others have been demanding: the Yuan’s central rate against the dollar was shifted by 2.1%, to 8.11.
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.
In particular, such a slight revaluation is unlikely to do much to slow China's fast-expanding economy. The day before the currency regime changed, the country's official statisticians said that GDP in the second quarter of 2005 was 9.5% higher than a year before, more than most pundits had forecast and only a shade less than the figure for the same period of 2004. Industrial production, ahead by 16.8% in the year to June, and investment in fixed assets, up by 25.4% in the first half, year on year, have both eased from their levels at the end of 2003, but remain strong. Inflation, as measured by the consumer-price index, is mild. It slid to 1.6% last month, down........
