Yuan enters a 'new era' as China enlarges trading band
By Feng Jianmin |
April 15, 2012, Sunday
|
Print Edition
Print Edition
China will double the yuan's trading band against the US dollar next week as the country improves the currency's flexibility and its pricing mechanism, the central bank said yesterday.
Economists said the long anticipated move signals an end for straight appreciation of the yuan, and is among the government's recent financial reforms to improve the economic structure even at the cost of slower growth.
Dealers will be able to trade the yuan within 1 percent, up from the current 0.5 percent, on each side of the official central parity rate starting tomorrow, the People's Bank of China said in a statement yesterday.
It is the first increase since 2007, when the band was widened from 0.3 percent.
"China's current foreign exchange market is developing more maturely and trading entities are more capable of pricing independently and managing risks," the statement said.
Qu Hongbin, a chief economist with HSBC, said the "symbolic move" of widening the trading band implies the trend of the yuan's one-way appreciation has come to an end.
"The yuan will be ushered into an new era of truly two dimensional fluctuations," Qu said.
He added it may benefit China's economy by reducing the inflow of speculative capital and relieving pressure on exporters from a stronger yuan.
The central bank's statement said the adjustment was made according to market demand, as it wants to promote yuan exchanges, boost its flexibility and improve floating of the exchange rate set against a basket of foreign currencies.
The People's Bank of China also said it will maintain the "normal fluctuation" of the yuan's exchange rate, stabilize the rate at "reasonable and balanced levels" and keep the macro economy and financial markets stable.
The announcement was made after Premier Wen Jiabao and central bank governor Zhou Xiaochuan both said they were in favor of a more flexible yuan during an annual legislature session last month.
Wen said the real exchange rate of the yuan may have reached its equilibrium, or true worth, but China would continue to advance exchange rate reform to have it move in both directions by a larger margin.
The central parity rate was set by the central bank at 6.2879 on Friday, strengthening 0.2 percent from December 30.
Economists have made stronger calls for a wider trading band since the fourth quarter last year, when speculation for yuan appreciation dwindled.
But the yuan's appreciation is not likely to stop, they said.
Shen Lan, an economist with Standard Chartered Bank in Shanghai, yesterday maintained the bank's estimate of a 1.4 percent yuan rise against the US dollar for 2012.
Economists said the long anticipated move signals an end for straight appreciation of the yuan, and is among the government's recent financial reforms to improve the economic structure even at the cost of slower growth.
Dealers will be able to trade the yuan within 1 percent, up from the current 0.5 percent, on each side of the official central parity rate starting tomorrow, the People's Bank of China said in a statement yesterday.
It is the first increase since 2007, when the band was widened from 0.3 percent.
"China's current foreign exchange market is developing more maturely and trading entities are more capable of pricing independently and managing risks," the statement said.
Qu Hongbin, a chief economist with HSBC, said the "symbolic move" of widening the trading band implies the trend of the yuan's one-way appreciation has come to an end.
"The yuan will be ushered into an new era of truly two dimensional fluctuations," Qu said.
He added it may benefit China's economy by reducing the inflow of speculative capital and relieving pressure on exporters from a stronger yuan.
The central bank's statement said the adjustment was made according to market demand, as it wants to promote yuan exchanges, boost its flexibility and improve floating of the exchange rate set against a basket of foreign currencies.
The People's Bank of China also said it will maintain the "normal fluctuation" of the yuan's exchange rate, stabilize the rate at "reasonable and balanced levels" and keep the macro economy and financial markets stable.
The announcement was made after Premier Wen Jiabao and central bank governor Zhou Xiaochuan both said they were in favor of a more flexible yuan during an annual legislature session last month.
Wen said the real exchange rate of the yuan may have reached its equilibrium, or true worth, but China would continue to advance exchange rate reform to have it move in both directions by a larger margin.
The central parity rate was set by the central bank at 6.2879 on Friday, strengthening 0.2 percent from December 30.
Economists have made stronger calls for a wider trading band since the fourth quarter last year, when speculation for yuan appreciation dwindled.
But the yuan's appreciation is not likely to stop, they said.
Shen Lan, an economist with Standard Chartered Bank in Shanghai, yesterday maintained the bank's estimate of a 1.4 percent yuan rise against the US dollar for 2012.
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