China Comes Off The Renminbi Dollar Peg

This is a big news day. China has just announced that it is going to come off the dollar peg currency arrangement. Well it’s not that simple, they have announced a 2% appreciation of the currency against the dollar, and that the renminbi will now float against a basket of currencies. In fact this is a very ‘dirty’ float, since the trading price of the US dollar against the renminbi will now float within a trading band of plus or minus 0.3 per cent, while the band of other currencies against the renminbi will be set by the central bank, at least this is what the official statement says. How this will work will doubtless become clear in the coming days. Still a start is a start, and in many ways this is a historic day.

Update: Around the blogs: Brad Setser is well onto this. As is Daniel Dresner who points us to this Wall Street Journal report by Michael Phillips.