MY earlier column, Realities About China’s BOP Surpluses (StarBizWeek, April 10, 2010), concluded: “…exclusive focus on China’s exchange rate policy is, I think, counter-productive. It will unlikely resolve the US’s persistent imbalance. However, as I see it, there is growing awareness in Beijing that greater exchange rate flexibility and a gradual yuan appreciation has to be an element of any credible package of policy measures for China to liberalise factor markets and remove cost distortions. This could transit over time to a full market economy. Any exchange rate adjustment has to be viewed in this context.”
Sure enough, the Peoples’ Bank of China (PBoC) announced on June 19 that it would allow greater flexibility for the yuan, thereby reverting to the flexibility it had enjoyed before the yuan was effectively re-pegged at around 6.83 per US dollar in mid-2008 to provide stability during the global crisis.