Teenagers ordered to tidy their room will often do the minimum necessary to get the oppressor off their back. So it is with China's announcement that its currency will trade more flexibly against the US dollar – while remaining basically stable – three days after the US president told it to. The move, a week before the G20 convenes in Toronto, could allow five days of very modest gains to demonstrate that Beijing is a responsible, if reluctant, world citizen.
China had to do something. The “emergency setting” of the renminbi/dollar peg, reimposed in July 2008, was looking increasingly incongruous. May's export surge of almost 50 per cent from a year earlier, the biggest in six years, restored China's monthly trade surplus comfortably above its five-year average. But what some outsiders really wanted – a one-off, double-digit revaluation – was never a serious option, given the losses exporters would take on their outstanding dollar receivables.
Instead, China seems likely to swap a fixed peg for a crawling one. The basket of 2005 to 2008 returns, along with the same daily trading band. There's no clue on the targeted pace of strengthening, but given the basket's likely composition – perhaps 70 per cent US dollar – markets should assume it will be gradual. That much is implied by Saturday's cryptic statement, which contained three uses of the word “flexibility,” four of “stable” or “stability”.