China’s Baby Step

Whatever the ultimate economic effects of China’s first modest step towards floating its currency, one has to admire its strategic brilliance. The genius of China’s mini-move (allowing the Yuan to rise 2% against the dollar) is that no one can tell when or what is going to happen next.

Protectionists in the United States and Europe, itching to slap huge punitive tariffs on Chinese goods, have been caught flat-footed. They want to keep bathing in press coverage, but if they push their China-bashing too far and too fast, the protectionists will be seen as hindering delicate behind-the-scenes negotiations.

But no one knows whether China’s baby step is the start of something much bigger, as China’s authorities hint one day and deny the next. By relenting just a little to intense global pressure to revalue its exchange rate, the Chinese leadership has masterfully stifled the growing chorus of demands to rein in its growing trade surplus. The key question, however, remains whether China is defying market forces at its own risk.

To continue reading, please log in or enter your email address.

To read this article from our archive, please log in or register now. After entering your email, you'll have access to two free articles every month. For unlimited access to Project Syndicate, subscribe now.


By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.