Chinese authorities may permit a more flexible currency

City A.M. Reporter
CHINA will make the yuan more flexible in either direction and recent reforms to make the currency more market-oriented have begun to achieve some results, Premier Wen Jiabao said on the weekend.

The comments probably do not signal an imminent widening of the yuan’s daily trading band, but they underscore Beijing’s intention to introduce two-way fluctuations in the yuan to dampen expectations that China’s currency could only appreciate.

Pointing to recent bets in overseas markets that had caused the yuan to hit the bottom end of its trading band several times, Wen said such a fall “could not have been engineered.”

“China will continue to closely monitor the yuan’s trading movements ... and will strengthen yuan’s trading flexibility in either direction,” the premier was quoted as saying in an evening news bulletin on state broadcaster CCTV.

Wen also told US President Barack Obama that the trade imbalance between the two countries was a structural issue and that maintaining the healthy development of bilateral trade was essential for both countries and the world, according to the broadcast.

Wen’s comments on the yuan were in line with recent central bank moves to encourage its value to fluctuate more widely within the daily trading band. The People’s Bank of China (PBOC) allows the yuan to rise or fall 0.5 per cent from its daily mid-point.

Some analysts and traders have argued that the central bank has been laying the groundwork for a widening of the trading band.