Exchange WSJ

The People's Bank of China announces the abandonment of the Chinese renminbi's 11-year-old peg to the U.S. dollar, in the first step towards a floating exchange rate.

Outsiders have always assumed that letting China's currency "float" would mean letting it "rise." China's leadership knows it's not that simple. Indeed, if domestic Chinese get nervous about the safety of their savings and start trying to cash out into dollars or gold, today's decision could yet turn out to be a seriously bad choice that sparks a run on the currency and the banks.
Unless we badly overestimate Beijing, the revaluation that began today (and whose extent is far from clear) was not a concession to foreign pressure, or an attempt to smooth the way for Chinese oil company CNOOC's bid for Unocal, or a bouquet for President Hu Jintao to bring when he visits Washington in the fall.

It was a bet that China's economy is ready to turn toward "intensive," rather than "extensive," development -- moving up the technological and services food chain, relying more on skills and less on drawing uneducated peasants into the job market. It also means devoting more resources to satisfying domestic demand with domestic production. That means China will have to start making better use of domestic savings -- and an important sign to watch for is a greater opening to private and foreign banks than has been allowed so far.