China to let Yuan float freely or not?

On Friday, the People’s Bank of China announced that “the People’s Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility.” On the heals of this announcement, commentators and the media lauded this as progress. After all, the G-20 meeting is coming up in a few weeks and it would have been horribly unpleasant for the Chinese had they not conceded something on currency maniplution (or “managed” as the Chinese prefer to call it).

I couldn’t help but notice that the statement contained absolutely nothing about timing or magnitude. In fact, the statement goes painfully out of its way to say significant adjustment is not necessary:

With the BOP account moving closer to equilibrium, the basis for large-scale appreciation of the RMB exchange rate does not exist.

So there you have it. Frankly, I think this is likely to be “vapor-ware” of sorts. So far, the Yuan has appreciated since the announcement. Let’s see how far it goes and how long it lasts.