In a move that could eventually affect everything from the price of T-shirts in Wal-Mart to the mortgage rates Americans pay, China is moving in the direction of a more flexible currency.

The change, like many things that happen in China, will be gradual and managed. In fact, initially, the Chinese currency will increase in value by only a little over 2 percent. But the Chinese are now committed to letting their currency, the yuan, join the ranks of the other economic powerhouses, Europe and the US, over time.

The Chinese action is a partial victory for the Bush administration which has been encouraging the Chinese to have a more flexible policy. However, it may also help the Chinese economy, one of the world's fastest growing and one in which inflationary pressures are mounting as a result of the huge recent inflow of dollars.

Although the immediate effect of the revaluation will be small, the longer term impact could be more far reaching:

• Long-term interest rates in the US could eventually rise since China is a major buyer of US Treasury securities. In the future, Beijing may not be buying as much US debt. This could increase the interest rates Americans pay for mortgages and slow down the US housing market.

• The US inflation rate might tick up if Chinese goods become more expensive. Some stores, such as Wal-Mart, fill their shelves with products made in China. Their costs will now increase.

• The rise in the value of the Chinese yuan as well as increases in other Asian currencies will give consumers in those countries more buying power. This could potentially mean more jobs for Americans if the US exports more goods.

"It is the beginning of setting a huge snowball in motion," says Axel Merk, who runs Merk Investments, a Palo Alto, Calif., firm that invests in hard currencies. "It will grow bigger and bigger."

In Shanghai, Stephen Green, a senior economist with Standard Chartered Bank, says the Chinese move "is exactly the policy you'd want to see."

He says the Chinese move is motivated mainly by domestic policy. After 11 years of pegging the yuan to the dollar, he says, the policy was undermining the nation's ability to control its monetary policy, foreign exchange was building up, and the central government was having to limit credit growth, hurting bank profitability. "It allows China to adjust to changing conditions through the exchange rate, rather than having to adjust the domestic economy."

The Chinese move, which had been expected to happen in August, was hailed by the Bush administration as "good news for the global economy." Thursday, Treasury Secretary John Snow, who has made several trips to China to push for change, called the new currency program a "very positive development." "We'll continue to closely follow the path of the yuan under this new and reformed regime that they're putting into place," he said.

His remarks were echoed by Fed chairman Alan Greenspan, who termed the Chinese move a "good start." On Wednesday, Mr. Greenspan, in testimony before Congress, said it was in China's interest to allow its currency to move higher.

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