That doesn’t mean it was without cost. The cheaper renminbi will mean higher inflation and will create a greater burden for Chinese companies that owe money in dollars, potentially setting off a new round of failures. Perhaps more important in the long run, as China liberalizes its currency, it gives up a crucial tool that the government has used for years to manage the economy and protect itself from being buffeted by global economic forces. China’s leadership has been reluctant to give up that power, and that’s why Tuesday’s announcement came as such a shock to global markets.
But it isn’t often that a policy choice helps achieve two big national goals at once. And when faced with such a choice, it appears China’s leaders were willing to give up a little bit of power for, they hope, better economic results at home and a bigger role in the global financial system.