Facing growing pressure from around the world, China's central bank announced Saturday that it is prepared to allow the country's currency to float more freely against the dollar and other foreign currencies, potentially raising the cost of Chinese goods.
The statement, from a spokesman for the People's Bank of China, gave no details on when China would allow its currency -- known as the yuan or the renminbi -- to appreciate or by how much. But the timing of its release, just before the leaders of the world's largest economies gather for a G-20 meeting in Toronto, was clearly aimed at taking pressure off Beijing.
Many countries, including the United States, have criticized China's fixed exchange rate, which critics say was keeping the country's exports too cheap and hurting manufacturers and traders worldwide. A group of U.S. senators had even threatened to slap tariffs of as much as 25 percent on all Chinese goods coming into the United States if China did not allow the yuan to appreciate against the dollar.
Whether Saturday's announcement will help the U.S. economy depends on how much Beijing lets its currency rise. A jump of 20 percent, for example, could cut as much as $150 billion off the U.S. trade deficit with China and create as many as 1 million U.S. jobs by making American exports more competitive, according to estimates by C. Fred Bergsten of the Peterson Institute of International Economics. From 2005 to 2008, China let the yuan appreciate 20 percent against the dollar before it stopped the process while it confronted the global financial crisis.
Few economists think China will let the yuan rise by that much, at least not yet. "This is a step in the right direction," said Bergsten, who has advised the Chinese government on the currency issue, "but the question is how far they will let the yuan rise -- and how fast."