On July 21, the People's Bank of China announced it had ended the yuan's effective peg to the U.S. dollar and that it would link it to a basket of currencies based on China's main trading partners. The central bank also said that the yuan's exchange rate as of that evening was 8.11 to the dollar.
The following day, newspapers worldwide reported that China had up-valued the yuan by a mere 2 percent. But we must not mistake the significance of this change, which differs from exchange-rate adjustments made by major industrialized nations.
The central bank's decision to remove the yuan's dollar peg has only given the currency a narrow range in which to fluctuate from the exchange rate announced by the Chinese monetary authority.