Stock markets around the world are starting the week on a bullish note following China’s decision to allow its currency to appreciate against the dollar.

by Peter Gorenstein – A stronger yuan means higher prices for Chinese exports – the base of their economy – but more competitive prices for the rest of the world’s goods. China has often been criticized for keeping their currency artificially low, making for unfair competition. Domestically, a stronger yuan gives the Chinese more purchasing power and lowers the risk of inflation, an easy way for Beijing to appease their growing middle class.

This is the first time China is allowing its currency to float since the financial crisis in 2008. Prior to that, China let the yuan to rise by about 20% beginning in 2005. Don’t expect a jump like that this time, China is controlling the situation tightly and will continue to limit the currency to a 0.5% daily trading range. What’s different is China’s sudden willingness to allow movement to the outer edge of the band: On Monday, the yuan rose 0.42% vs. the dollar, the biggest one-day move since July 2005, according to Bloomberg.

In the end, this move is largely symbolic, as Aaron and Henry point out in the accompanying clip. With the upcoming G20 meeting, the announcement illustrates China’s willingness to play their part in helping to rebalance the global economy — at least symbolically.

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