Financial markets globally were cheered by China's announcement recently — and its action later — that it would make its currency more flexible. On June 28, China pegged the yuan at its highest level in five years. A stronger yuan should, theoretically, ease global trade imbalances by making exports from other countries more competitive. But it may have little impact on the ground.
It's a relatively small appreciation in the yuan over the short term, which is not exactly what the United States had in mind. The People's Bank of China has clearly specified that "the basis for large-scale appreciation of the renminbi exchange rate does not exist".
The statement forestalled a potential showdown between the US and China at the G20 summit in Toronto. The central bank's move eased pressure from the international community for meaningful currency reform.
The deep-rooted problems of the developed economies, then, won't suddenly disappear because of a shift in currency policy by China. The US economy is still not out of the woods. And, yes, the massive problem of debt in Europe remains a big problem.
