China: Yuan to be kept 'basically stable'

The Yuan is a currency pegged to a basket of fiat currencies that is dominated by the U.S. dollar. The Chinese decision to keep it "basically stable" refers to its relative value against this basket. A currency pegged to a basket of debasing currencies, nonetheless, is also a debasing currency. Eventually, when China decides to run its own monetary policy, either by choice or market direction, it will remove the peg to the basket. While central planners always believe that monetary transition can be managed to their agenda, they ignore the fact that history suggests that the market, through violent and chaotic hemorrhages, controls them.

Washington and other trading partners complain China's exchange rate controls keep the yuan undervalued, giving its exporters an unfair advantage. Beijing announced in June it would allow more flexibility but ruled out any big changes.

Source: finance.yahoo.com