Abandoning the currency peg with the dollar a sensible move

On 21 July, the Chinese authorities revalued the renminbi by 2.1% versus the dollar and announced the replacement of their fixed exchange rate system, with a managed-float exchange rate regime versus a basket of undisclosed global currencies. This was just one step in the overall reform of China's capital accounts and the authorities have adopted a tight daily band of +/-0.3% against this basket to prevent sharp short-term volatility of the renminbi and help control the financial and capital account risks. The announcement resulted in a drop in the dollar against other major currencies i...