China Changes Currency Strategy

(AP)  China said Thursday it will no longer peg its currency to the U.S. dollar but instead let it float in a tight band against a basket of foreign currencies.

The yuan currency has been strengthened, effective immediately, to a rate of 8.11 to the U.S. dollar — compared to the 8.28 it has been set at for more than a decade. The new trading regime will begin Friday, the government said in an announcement on state television.

China's decade-long policy of fixing the yuan to the dollar had drawn fire from Washington, which had accused Beijing of keeping the yuan artificially weak to boost the competitiveness of Chinese exports.

Some U.S. lawmakers had threatened tariffs if China didn't adjust its yuan trading scheme.

Federal Reserve Chairman Alan Greenspan on Thursday welcomed China's decision to move to a more flexible currency system, calling it "a good start."

Greenspan's comments during an appearance before the Senate Banking Committee came as the United States, while praising China's action, said it would monitor the country's implementation of the new arrangement.

The yuan will now be allowed to trade in a tight 0.3 percent band against a basket of foreign currencies, the government said. It didn't say which currencies.

It said the central bank would announce the yuan's closing price each day, and that rate would be the midpoint of the next day's trading band.

The announcement was a surprise and came on the government's main evening newscast.

Chinese leaders have been saying for years that any adjustment to China's currency policy would be based on domestic economic needs and not foreign pressure.

China had resisted changes, saying its fragile banking system wasn't ready to let its currency float freely.

Shortly after China's announcement, the Malaysian government said it is severing the peg of its currency to the U.S. dollar, replacing it with manged float.