In July 2005, China dropped its decade-long currency peg to the U.S. dollar, and instead repegged to a basket of currencies. China reevaluated the yuan to make the currency effectively 2.1 percent stronger against the U.S. dollar. On May 16, 2007, China again took steps to let its currency trade more freely against the dollar and to cool its sizzling economy and contain its soaring trade surplus with the United States. The yuan was allowed to fluctuate further against the dollar by 0.5 percent a day, up from 0.3 percent. Under the new currency system, China has not yet surrendered control of the currency. It has moved away from a fixed exchange rate but not all the way to a flexible or free-floating one. American manufacturers and labor unions hope the yuan's reevaluation will help U.S. factory sales and jobs by making U.S. goods more affordable abroad. For China, the currency move will make Chinese exports a little more expensive abroad. Many Asian countries have been trying to compete with China's low-cost manufacturing, and after China's yuan reevaluation, Malaysia announced it would drop its peg to the U.S. dollar as well. In the short run, the change in China's currency management system could be almost unnoticeable. In the longer run, however, the impact on trade and on the world financial system could be huge. Based on what you have learned from this chapter, what would be the impacts on the world's economy if China and other Asian countries truly allowed their currencies to float, or, instead, kept holding them within narrow bands against the dollar?