Business / Markets

Yuan takes another major step toward full convertibility

By Reuters (China Daily) Updated: 2014-07-04 08:43

Allowing the market to price the yuan against the dollar is a prerequisite for wider liberalization and at the same time decreases the need for China to accrue dollar reserves in the name of managing the exchange rate.

Yuan takes another major step toward full convertibility
Chinese banks given yuan exchange freedom

Yuan takes another major step toward full convertibility
Yuan exchange rate's floating range widened  
The PBOC has guided the yuan to stage more two-way trading over the past couple of years, letting the currency appreciate 2.9 percent against the dollar in 2013, only to push it down as much as 3.4 percent this year to convince the market not to consider the currency a one-way bet on appreciation.

With the first market-oriented yuan/dollar exchange rates in the OTC market, the central bank can collect data on dollar supply and demand from major State banks, traders said.

"Retailing is also an important indicator for yuan/dollar demand and supply and reflects sentiment toward these currencies," said a senior dealer at a major European bank in Shanghai. "As such, the OTC exchange rates will have an influence on the interbank rates and help banks discover market-oriented rates."

Chinese companies welcomed the move. "The opening will have a positive impact on corporate foreign exchange deals," said Wang Xinjiu, a representative of China International Marine Containers (Group) Co Ltd, the world's top container producer.

"Companies, just like individuals, will have better channels to meet their foreign exchange demand with more reasonable exchange rates," he said.

The latest reform comes ahead of economic talks between the United States and China later this month, during which US officials are expected to raise concerns about China's intervention in the currency market.

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