On Friday, Mr Snow told CNBC television that China had made "an important first step" by ending the policy of pegging the yuan to US dollar.

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Bernanke believes that the announced policy of pegging will cause arbitrageurs to keep yields near the announced peg, especially if the Fed intervenes several times to prove its commitment.

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The score on macroeconomic policy is roughly level-pegging: Labour has succeeded in neutralising macro management as an election issue.

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Currency crises might also occur because pegging the exchange rate requires governments to use monetary policy in order to maintain the currency's value.

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Even so, China could still introduce some flexibility into its exchange rate, and so regain control of monetary policy, by adopting a wider band or by pegging to a currency basket rather than just to the dollar.

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By pegging to the dollar, it is, in effect, importing America's monetary policy, which is too loose for China's fast growing economy.

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