The Yuan Floats

And so the experiment begins.  From the China Daily:

The People's Bank of China, China's central bank, announced Thursday that the exchange rate of US dollars to RMB is changed to one dollar to 8.11 yuan from 19:00 Thursday.

The following is the full text of the announcement published on the central bank’s website (www.pbc.gov.cn):

Public Annoucnement of the People's Bank of China on Reforming the RMB Exchange Rate Regime

July 21, 2005

With a view to establish and improve the socialist market economic system in China, enable the market to fully play its role in resource allocation as well as to put in place and further strengthen the managed floating exchange rate regime based on market supply and demand, the People's Bank of China, with authorization of the State Council, is hereby making the following announcements regarding reforming the RMB exchange rate regime:

1. Starting from July 21, 2005, China will reform the exchange rate regime by moving into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. RMB will no longer be pegged to the US dollar and the RMB exchange rate regime will be improved with greater flexibility.

2. The People's Bank of China will announce the closing price of a foreign currency such as the US dollar traded against the RMB in the inter-bank foreign exchange market after the closing of the market on each working day, and will make it the central parity for the trading against the RMB on the following working day.

3. The exchange rate of the US dollar against the RMB will be adjusted to 8.11 yuan per US dollar at the time of 19:00 hours of July 21, 2005. The foreign exchange designated banks may since adjust quotations of foreign currencies to their customers.

4. The daily trading price of the US dollar against the RMB in the inter-bank foreign exchange market will continue to be allowed to float within a band of 0.3 percent around the central parity published by the People's Bank of China, while the trading prices of the non-US dollar currencies against the RMB will be allowed to move within a certain band announced by the People's Bank of China.

The People's Bank of China will make adjustment of the RMB exchange rate band when necessary according to market development as well as the economic and financial situation. The RMB exchange rate will be more flexible based on market condition with reference to a basket of currencies. The People's Bank of China is responsible for maintaining the RMB exchange rate basically stable at an adaptive and equilibrium level, so as to promote the basic equilibrium of the balance of payments and safeguard macroeconomic and financial stability.

I will be blogging throughout the day for the Wall Street Journal Online's Econblog, opposite Nouriel Roubini.  I will update with the link when it becomes available.

UPDATE: Here is the link to the WSJ feature.  Nouriel may be beating me on points, but he is for sure beating me on word count.

AROUND THE BLOGHORN UPDATE:

Brad Setser speculates that the RMB has more appreciating to do, and that the move will result in more intervention in the short-run.  Kash shares that view. As does William Polley. So does King at SCSU Scholars (hat tip, William).  Same with Fester at UPC.

The Big Picture opines that this news plays into a bullish scenario for 2006.

Daniel Drezner thinks its too early to tell where all this is headed.

General Glut hopes that this means progress on our "gargantuan trade imbalances."

Global Trader's Diary -- here and here -- believes this is a story that will unravel for the next couple of weeks.

Max Sawicky is glad this may bring renewed focus to the trade deficit.

Michael Shedlock asks a lot of good questions.

The China Stock Blog a bunch of good links (hat tip Simon World).

Notice is also taken at a A Fistful of Euros,