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People's Daily Online>>China Business

Yuan's trading reform gains momentum


10:02, April 16, 2012

China's move to widen the yuan's trading band has unveiled its attempts to speed up market-based currency exchange rate reform, which means more trading risks for its exporters and banks as well, analysts said.

The People's Bank of China, the country's central bank, said Saturday the daily limit of the yuan's trading against the U.S. dollar in the foreign exchange spot market will be lifted from 0.5 percent to 1 percent effective April 16.

The move, following a rise to 0.5 percent from 0.3 percent in 2007, is widely seen as part of the country's intent to gradually ease its grip on capital control.

To keep the exchange rate stable, China has set a more restrictive rule on the yuan's trading against the U.S. dollar compared with other currencies.

Reform speeds up

The expansion is expected to accelerate the market-oriented reform of the yuan's exchange rate, which will in turn push forward the country's economic reforms as a whole, analysts said..

"A more flexible yuan will help better identify market supply and demand and promote [the yuan's] price to reach a balanced level, which will facilitate the exchange rate's reform," said Ding Zhijie, dean of the School of Banking and Finance with the University of International Business and Economics.

As a crucial step of the exchange rate reform, the expansion shows the government is relaxing its control and moves to let the market play a bigger role, Ding said.

Zhuang Jian, a senior economist with Asian Development Bank, said a wider trading band will lay a foundation for the country's efforts to open the capital account and realize a free convertible exchange rate system.

A central bank study released in February said the time was ripe for China to open its capital account.

"By letting exchange rate act as a price leverage in allocating market resources, reforms in other sectors will also be liberalized," said Zhang Bin, a researcher at the Institute of Finance and Trade Economics under the Chinese Academy of Social Science.

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