A Signal Beijing Will (Eventually) Stop Pegging Its Currency to the Dollar

Zhou Xiaochuan, governor of the People’s Bank of China, gave the strongest hint yet from a senior official that China would abandon the unofficial dollar peg, in place since mid-2008. He said it was a “special” policy to weather the financial crisis, FT reports.

This is serious talk. Zhou is the equivalent of America's Fed chairman, Ben Bernanke.

“This is a part of our package of policies for dealing with the global financial crisis. Sooner or later, we will exit the policies, " said Zhou.

Zhou gave no hint about the possible timing of a shift in policy, said FT.

If China stops propping up the dollar, it will intensify price inflation in the United States. And depending on the timing, it could also mean the end to the dollar as the world's reserve currency.

China depegged from the dollar in 2005,and shifted to a basket currency approach. As the financial crisis heated up, it shifted back to a dollar peg.