China doubles yuan trading band
Print Edition
CHINA announced yesterday a modest easing of exchange rate controls, adding to reform initiatives aimed at making its slowing economy more efficient.
The range in which the yuan is allowed to fluctuate against the dollar each day will double in size, though to a still relatively narrow 2 percent.
The move was widely expected after Premier Li Keqiang promised in his annual policy speech recently to give market forces a “decisive role” in allocating credit and other resources in the state-dominated economy.
The Party says it wants to inject more competition into the economy and nurture self-sustaining growth based on domestic consumption instead of trade and investment.
In a steady drumbeat of recent changes, authorities also have announced plans to create China’s first privately financed banks and promised to ease the tax and regulatory burden on entrepreneurs.
Widening the trading band will help to “optimize the efficiency of capital allocation and market allocation of resources to accelerate economic development,” said a central bank statement.
China’s rapid economic growth tumbled to a two-decade low of 7.7 percent last year. This year’s official growth target is slightly lower at 7.5 percent, but Li said this week Beijing will be flexible about it as long as the economy generates enough new jobs.
In recent weeks, the central bank has been guiding the yuan’s exchange lower against the dollar in what analysts said was an effort to discourage speculators who are moving money into China to profit from the currency’s rise.
Beijing allowed the yuan to gain about 20 percent against the dollar beginning in 2005 but movement stopped after the 2008 global crisis as the government tried to protect struggling exporters.
The yuan has been trading at about six to the dollar. Analysts say Beijing might allow that to rise to 5.88 to the dollar by mid-2014, a rise of about 2 percent. That would be small by global currency market standards but unusually large for China.
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