STR
By allowing a gradual rise in the exchange rate of its currency, China has taken a small but significant step toward less imbalanced international economical relations. The "crawling peg" of Western economics vernacular becomes in modern Chinese bureaucratese an increase of flexibility in the "managed floating exchange-rate regime" - that is to say, not so much a float as a series of ripples.
Monday, the first day of trading after the announcement of the policy change, offered what will probably turn out to be a good example of what this means in practice. The market opened disappointingly with no change at all in the official parity rate, but then the renminbi moved most of the available upward distance of 50 basis points, for a while by 0.43 per cent, equalling its high point in July, 2008, just before the financial crisis put an end to the previous period of gradual increase.
Though the remarks of the spokesperson for the People's Bank of China - the central bank - were mostly vague or opaque, some well founded motives for this move - beyond a defensive warding off of complaints that would otherwise have been made at the G20 summit in Toronto - did emerge. Two of the stated purposes are to make growth less export-reliant, by letting Chinese exports become somewhat more expensive, and to "contain inflation and asset bubbles."
The central bank genuinely seems to want to restrain rising price levels within China, partly a result of money pouring into the country because of the sales abroad of inexpensive Chinese goods.
Meanwhile, shares in Chinese companies are a bargain for foreigners, which tends to cause an investment asset bubble, which could lead to a sudden burst.
Nonetheless, a slow upward crawl would encourage hurried purchases of interests in Chinese firms, with foreign investors rushing, day by day, to get bargains before each expected rise in the renminbi.
Greater purchasing power for Chinese consumers, thanks to less expensive imports from the rest of the world, would do much more to rebalance the Chinese economy toward consumption from excessive saving than any number of Western sermons about global imbalances to the powers-that-be in China.
So far, all that China's policy revision has actually accomplished is to make up for lost time in the revaluation of its currency. When the recession struck in 2008, China let its exchange rate fall to sustain its exports at a time of diminished world trade and international demand. But that is still some progress.