China Promises More Flexibility on Yuan Exchange Rate

China currency statement
China currency statement

In a surprise Saturday announcement, the Chinese central bank said it would allow more flexibility in the exchange rate of its currency, the yuan, also known as the renminbi (RMB). The move seems intended to help foreign economies as China's own economy shows increased strength.

"The global economy is gradually recovering," reads part of the statement from the People's Bank of China. "The recovery and upturn of the Chinese economy has become more solid with the enhanced economic stability. It is desirable to proceed further with reform of the RMB exchange rate regime and increase the RMB exchange rate flexibility."

Central bankers didn't say they would let the yuan appreciate against the dollar, which would make other countries' exports more competitive with China's typically low-cost goods. But some appreciation was implied.

Whether the announcement will be enough to placate critics, especially U.S. lawmakers who say an undervalued currency gives China an unfair trade advantage, remains to be seen. Very gradual appreciation of the yuan against the dollar was permitted by the Chinese government starting in 2005.

U.S. Treasury Secretary Timothy Geithner welcomed China's increase in flexibility, saying in a statement that it would, "make a positive contribution to strong and balanced global growth."

China's currency statement comes in advance of the G-20 meeting, a summit of representatives from 20 major industrial nations in Toronto next week. President Barack Obama has said it's essential to global economic vitality that countries adopt market-oriented exchange rates.