Don’t Get excited about the Yuan Moving

China’s currency has broken the 8 reminmbi to the dollar mark. Now is this a big deal or not?

I don’t think it is that important for two reasons. The first is that the movement seems to be within the narrow basket range that the Central Bank of China has allowed, so it is not like there is a massive drop in investor confidence as to the ability of the Chinese government to maintain a soft peg. Secondly, and this is far more prosaically, the drop below 8rem:$ is only a 3.3% revaluation from the fixed rate of 8.28 which the Chinees dropped last year. Most reports indicate that a significant Chinese revaluation will have minimal direct effect on the US current account deficit. [hattip Bonobo Land

In this context “significant” means 20%, 30% changes in the exchange rate, not fractions of a single percentage point from the previously floating position to a slightly higher floating position.

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