China wants Yuan to be more flexible

China , Currencies , Yuan Mar 06, 2013 No Comments

YuanChina is seeking to bolster the use of yuan in international trade and finance to reduce the U.S. dollar’s global dominance and curb its own reliance on the currency of the world’s biggest economy.

China will press ahead with reforms to allow more flexibility in the yuan‘s exchange rate and the remaining barriers to creating a cross-border currency trading zone could be cleared in the first half of this year, senior officials said today.

The yuan has appreciated 1 percent versus the greenback this year and touched a 19-year high of 6.2223 per dollar on Nov. 27. The currency slipped 0.03 percent today to 6.2321 as of 10:05 a.m. in Shanghai, a level 0.91 percent stronger than the central bank fixing of 6.2881.

Zhang Ping, head of the National Development and Reform Commission (NDRC), the country’s top economic planning agency, said only six of 22 measures needed to get a $45 billion special economic foreign exchange trading zone up and running in Qianhai, near the border with Hong Kong, were outstanding and likely to be resolved in the first half of 2013. China set up the Qianhai business zone offering freer currency movements and Hong Kong professional standards last June. The government released rules in December for companies that incorporate in the area to borrow yuan loans from Hong Kong banks with interest rates and tenors to be fixed independently.

Internationalization of China’s currency has gained momentum lately, such as the launch last week of offshore futures contracts deliverable in yuan by Chicago-based exchange operator CME Group Inc. Financial hubs London, Singapore and Hong Kong have become centers for transactions denominated in yuan since the People’s Bank of China in July 2009 introduced plans to make the currency a bigger player in world markets.

The yuan exchange rate may see more flexibility this year but is expected to remain “basically stable”, People’s Bank of China Vice-Governor Yi Gang said. He also repeated to reporters on the sidelines of the annual National People’s Congress the bank’s assessment that the currency is near its equilibrium level. “The yuan exchange rate this year will be more balanced, with greater flexibility, and will remain basically stable,” he said.

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Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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