Yuan to float more freely

Yuan to float more freely

CHINA - China is poised to take yet another step in making the yuan a free-floating currency, according to central bank Governor Zhou Xiaochuan.

The People's Bank of China, the country's central bank, intends to further widen the yuan's daily trading band as it boosts the currency's convertibility, Zhou was quoted as saying by Bloomberg in a newly published book explaining the reform guideline outlined last week following a meeting of the Party leaders.

A central bank official confirmed the existence of the book to China Daily on Tuesday.

China currently provides a daily reference rate for the yuan to the foreign exchange market as it seeks a stable exchange rate for China's fast-growing yet nascent market economy. Daily fluctuation is now at 1 per cent north and south of the reference rate, after being widened last year from 0.5 per cent, and 0.3 per cent in 2007.

"A freer yuan is compatible with the reality in the foreign exchange market," said Lian Ping, chief economist with Bank of Communications Ltd in Beijing.

China's capital flow has evolved into two-way movement, he said, and a yuan able to move in a wider range will help smooth capital flows and lay a better foundation for real economy activities.

Wang Jianhui, chief economist with Southwest Securities Co Ltd, said that unshackling the yuan will come in phases, and the currency won't float freely at the beginning.

"Any reforms will proceed in baby steps. That's how they do things in the central bank," he said.

The PBOC on Tuesday set the yuan's midpoint price 15 basis points higher to 6.1317 against the US dollar, according to the China Foreign Exchange Trading System. That's only two basis points lower than a record high of 6.1315.

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