China takes another step towards flexible yuan (Reuters) Updated: 2006-01-04 19:54
Ma reckoned the central bank would allow the yuan to rise only slowly --
about 4 percent this year.
Even under the more restricted flexibility of the previous system, the
currency never moved more than a tiny fraction of its permissible 0.3 percent
each day.
Indeed, the first mid-rate quoted by the market makers, Wednesday's 8.0702
per dollar, was identical with previous close.
And the central bank was quick to dampen speculation of a further
appreciation of the yuan, which the United States says is still seriously
undervalued and gives Chinese goods an unfair advantage in global markets.
The central bank said it would keep the yuan stable for now.
OVER-THE-COUNTER TRADING
China revalued the yuan in July by 2.1 percent and dropped a dollar peg in
favour of managing its value with reference to a basket of currencies.
The yuan has consistently trended higher since then, but in minuscule steps,
gaining just 0.5 percent since revaluation.
"The (mid) rate will be near the yuan's previous day's close for now as
market markers will be cautious and take hints from the central bank," said a
dealer at a major Chinese bank.
"But it will drift away gradually to become a more independent rate along
with the deepening of currency reforms."
Other changes launched on Wednesday supported the introduction of market
makers -- banks who stand ready to trade when no one else wants to, keeping the
market liquid.
Market participants would be allowed to trade openly over the counter, as is
usual in foreign exchange markets elsewhere. The old system, which the central
bank said would eventually be scrapped, automatically matches trades for
anonymous bidders.
The 0.3 percent daily range applies to the dollar mid rate. The yuan is
allowed to move further against other currencies.
The China Foreign Exchange Trade System will announce the daily mid rates
against the U.S. dollar, euro, Japanese yen and Hong Kong dollar at 9.15 a.m.
daily.
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