But the change against the dollar is small.  Very small.

Too small in my view to have much of an economic impact, in any way.  On trade flows.  Or on capital flows.  I would still bet on a further revaluation.

For once, I agree with Stephen Jen:

"``This was the tiniest and smallest move China could make,'' said Stephen Jen, head of global currency strategy at Morgan Stanley in London. ``The motivation for making such a small move is due to political concerns and that the Chinese could buy some time with the Americans.''

China afterall has a substantial, and growing, current account surplus.  The revaluation seems too small to change that.

If Goldman is right, a 2% revaluation v. the dollar (and the world) will slow Chinese export growth by about 2% -- from 30% to 28%.   Or if you think China's export growth would have slowed anyway, from 25% to 23%.   In other words, not by much.

Remember, this is hardly the only move in China's currency this year.  Since China's currency tracked the dollar til now, it already has appreciated by 10% against the  euro.  Since China trades almost as much with Europe as with the US, that move is likely to have a bigger impact on China's trade than the currrent move.

Going forward, though, China's new basket peg means that the renminbi won't always track the dollar.  That makes sense.  The currency of a major creditor (China) should not be pegged to the currency of the world's biggest debtor (the US).

The big question in the short-run is wheter a small move like this will ward off (growing) political pressure to restrict Chinese access to the US market, and parallel pressure to restrict Chinese access to the European market.

Update: Nouriel Roubini is discussing the impact of the renminbi revaluation on the Wall Street Journal's Econoblog.  He also has done an interview with the New York Times.  I also want to join Dr. Drezner in recommending this Michael Phillips article.

Some initial speculation on the impact on capital markets follows below the fold.