Praise from US as China ends yuan peg to dollar ahead of G20 summit
CHINA said it will allow a more flexible yuan, signalling an end to the currency's two-year-old peg to the dollar a week before a G20 summit.
The decision was made after the world's third-largest economy improved, the central bank said yesterday, without indicating a timeframe for the change.
It ruled out a one-time revaluation, saying there is no basis for "large-scale appreciation" and kept the yuan's 0.5pc daily trading band unchanged.
"The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability," the People's Bank of China said. "It is desirable to proceed further with reform of the renminbi exchange-rate regime and increase the renminbi exchange-rate flexibility."
The move may help deflect criticism from President Barack Obama and other G20 leaders, who have blamed China for relying on an undervalued currency to promote exports. It also affirms US Treasury Secretary Timothy Geithner's policy of encouraging China to loosen restrictions on the yuan while resisting calls in Congress for sanctions.
Mr Geithner in April delayed a report to lawmakers assessing whether China or any other country is unfairly manipulating its exchange rate.
"This is another small victory for Tim Geithner," Goldman Sachs Group Chief Global Economist Jim O'Neill said. "It makes it a lot more difficult for Washington and Congress to do China bashing," he added. "The Chinese are increasingly confident they can make this adjustment to a domestic-driven economy rather than the one relying on exporting low-value-added stuff to the rest of the world."
Mr Geithner praised China's decision, saying "vigorous implementation would make a positive contribution to strong and balanced global growth".