China takes a turn in its yuan exchange rate policy

China Takes a turn in ITS yuan exchange rate policy

China is heading towards a shift in monetary policy could come this year. Chinese Premier Li Keqiang has said in an annual government report that “the exchange rate of the renminbi will be liberalized further and the stable position of the currency will remain in the world monetary system.”

For the first time, the report is sent to the Chinese parliament on the state of the currency, Beijing has included the requirement to ensure global status of the yuan as one of its objectives. At the same time, has shelved earlier statement about “maintaining a stable at a reasonable and balanced level yuan”, which was included in the reports of the three preceding years, says the newspaper South China Morning Post.

The new formulation could indicate that the Chinese government will be more tolerant of movements in the exchange rate of the yuan against the dollar and gradually reduce its intervention in the currency market this year. It also notes the will to change course on exchange rates amid threats of US President Donald Trump of a trade war.

The yuan has advanced Monday for the first time in four days, after the People’s Bank of China has raised the fixed exchange rate of the currency. The central bank has set the price against the dollar at 6,879 yuan, 1.06% higher than last Friday. Operators can only sell or buy the yuan by 2% above or below this level.

MORE FLEXIBILITY ON YUAN

The government report notes that the debate on the free fluctuation of the yuan is more alive than ever. In late February, the State Agency Market of Foreign Exchange (SAFE for its acronym in English) Chinese central bank varied the mechanism which measures the reference exchange rate of the yuan.

It was a mere adjustment of the time window on which the daily price stipulated around which it allows the currency to fluctuate by 2% against the dollar, but the cut nine hours from the previous 24, to the current 15, She was interpreted as another step towards a renminbi operating under market laws.

 

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