China lets the yuan rise—but how far?

China has revalued its currency, the yuan, and linked it to a basket of currencies—though it is not yet clear how far it will be allowed to rise. The move may ease trade tension with America, though China's slowingto buy Inflatable Advertising economy, which is boosting its trade surplus, may reignite the spat SOONER or later, it was going to happen, and on Thursday July 21st it did. China abandoned the 11-year-old peg of its currency, the yuan, at 8.28 to the dollar. From now on, the yuan will be linked to a basket of currencies, the central parities of which will be set at the end of each day. And the currency has been revalued, although by nothing like as much as America and othersbusiness Air Dancer have been demanding: the yuan's initial central rate against the dollar was shifted by just 2.1%, to 8.11. So far, it is not clear exactly how the new system will operate. The Chinese called it a “managed floating exchange-rate regime”, which may well imply more management than floating. Neither the currencies in the basket used to set the level of the yuan, nor their weights, have been disclosed. The fact that the Chinese have acted at all is important. But the eventual economic and political effects of the revaluation will depend on how far and how fast the yuan moves from now on. In Friday's trading it barely budged—and in fact closed a fraction below 8.11 to the dollar, suggesting the authorities are keen to damp down market expectations of further rises.