China wants Yuan to be more flexible

China 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.

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Beijing creates a trial zone for yuan convertibility

The Chinese government announced a plan to set up a trial area in Qinhai Bay (Shenzhen) to experiment with the yuan‘s convertibility, the latest step in its moves to open up its capital markets.

Banks in Hong Kong, across Qinhai Bay, will be allowed to lend yuan directly to companies established in this zone. This test project, which will takes place over the next 8 years starting from 2013, is part of a broader plan to establish the yuan free convertibility and open up Chinese capital markets to try to trigger a fresh wave of economic growth.

The creation of this special currency area promotes the role of Hong Kong in the internationalization of the Chinese currency.

China Widens Trading Band for Yuan

The Chinese government has agreed to loosen controls somewhat on the yuan and let it fluctuate more widely. As a result, Chinese goods may become more expensive, especially if growth in the yuan’s value accelerates, Purchasers need to keep a close eye on the Chinese currency, and would be well advised to consider looking elsewhere for cheap products. if it starts rising sharply.

Over the week-end, the People’s Bank of China (PBOC) took another step in the process towards the yuan to the status of a convertible currency by announcing a doubling of its daily trading range.

From today, the Chinese currency will be allowed to rise or fall by 1% each day from its central rate against the greenback. Its fluctuation, upward or downward, was limited until now to 0.5%.

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