Word: peg
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...dependent American consumers may slow their spending as a result. While this may be painful, it may also be the only way for the U.S. and the rest of the world to come to grips with the U.S.'s glaring foreign-trade and current-account imbalances. China's dollar peg was a major impediment to the rebalancing of a global economy, which has become dangerously dependent for growth upon the unsustainable excesses of U.S. consumption...
Over the past year, wild speculation and furious debate have turned the future of the Chinese currency, the yuan, into the hottest and most polarizing topic in the global economy. Pegged to the U.S. dollar since 1994?meaning that when the value of the greenback rose or fell, so did the yuan's?China's currency had come to embody the industrialized world's fears of a hypercompetitive mainland staging a hostile takeover of global manufacturing. Led by the U.S., critics accused China of clinging to the dollar peg in order to keep the yuan artificially weak, making its exports...
...Although considerably more muted than expected, the answer came on July 21, when the People's Bank of China posted a notice on its website announcing the end of the yuan's peg to the dollar. Citing its wish to "improve the socialist market economic system in China," the bank set the yuan at 8.11 to the dollar?a 2.1% increase in its value?and decreed that henceforth it would trade within a narrow band of 0.3% each day against a basket of (unnamed) currencies. Now that the yuan is allowed to float, even only slightly, its value should better...
...Indeed, financial markets greeted the change without a fuss. But much like the famous butterfly of chaos theory, which flaps its wings in Brazil and sets off a tornado in Texas, Beijing's decision portends momentous consequences for the global economy down the road. Scrapping the dollar peg is widely seen by economists as the first step toward a free-floating, and much stronger, yuan. If the yuan continues to appreciate, China's new currency policy could reorder global trade and investment, boost the power of Asian consumers, and address global trade imbalances. U.S. Treasury Secretary John Snow...
...what price to the Chinese economy? China had resisted ending the peg partly out of fear that its factories would become less competitive, which would cost the country jobs and curtail growth in its export-fueled economy. Officials for Chinese companies that compete almost entirely on price, such as those in the toys and textiles industries, say even this 2.1% increase in the yuan's value will hurt sales to cost-conscious U.S. retailing giants such as Wal-Mart and Target. Yu Zhihua, export manager for the Hangzhou Silk and Garment Import Export Corp. in Hangzhou, says her profit margins...