China signals freer yuan, to widen trading band
November 20, 2013, 9:41 am

The yuan fell 0.01 per cent to close at 6.0927 per dollar in Shanghai [Xinhua]

The People’s Bank of China (PBOC), the nation’s central bank, intends to further widen the yuan’s daily trading band as it boosts the currency’s convertibility, PBOC Governor Zhou Xiaochuan was quoted by Bloomberg in a newly published book explaining the reform guideline outlined last week following a meeting of CPC leaders.

Zhou in his book says the PBOC will cancel volume limits on trial programmes that give foreign fund managers access to Chinese capital markets and Chinese managers to foreign markets, as it speeds up efforts to boost the yuan’s convertibility.

“China will speed up the process for the yuan to become fully convertible and strengthen supervision on hot money,” Zhou wrote.

Quotas under the qualified foreign institutional investor programme and the qualified domestic institutional investor programme will be expanded and then erased, added Zhou.

The Asian nation currently provides a daily reference rate for the yuan to the foreign exchange market. Daily fluctuation is now at one per cent north and south of the reference rate, after being widened last year from 0.5 per cent, and 0.3 per cent in 2007.

The PBOC on Tuesday set the yuan’s midpoint price 15 basis points higher to 6.1317 against the US dollar, according to the China Foreign Exchange Trading System — two basis points lower than a record high of 6.1315.

Twelve-month non-deliverable forwards gained 0.19 per cent to 6.1495 per dollar in Hong Kong and the yuan fell 0.01 per cent to close at 6.0927 per dollar in Shanghai.

The yuan is fully convertible under the current account, which registers trade-related fund flows. Under the capital account system, though, the country subjects a few types of payments to administrative approval, over fears that excess speculation in financial markets will unsettle stability.

The central bank has talked about making China’s capital account more convertible for a while, but analysts believe that it is ready to take bigger steps now that the 60-point reform blueprint published last week promises to open up the financial industry.

A ceiling on deposit rates offered by Chinese banks also will be phased out, PBOC Deputy Governor Yi Gang wrote in the book.

Acceleration of yuan convertibility and liberalisation of interest rates were among the key reform proposals announced after the Third Plenum meet in Beijing.

Source: Agencies