China’s leadership “remains determined to move ahead” with its reform agenda, says Fxpro.com. The central bank sets a daily rate for the currency, the yuan. The yuan has hitherto been allowed to rise or fall by 0.5% beyond this rate every day. Now this trading range has been widened to 1%.
Greater yuan flexibility suggests the government is confident the currency is no longer undervalued, as other countries have insisted in recent years. That means it won’t constantly be marked up, says Tom Orlik in The Wall Street Journal.
It’s “another signal that China is inching its way towards a flexible exchange rate driven by the market”, says Ian King in The Times. Reforms “point to the internationalisation” of the yuan.
This move follows a relaxation of limits on foreign portfolio investment. That should raise foreign demand for yuan-denominated bonds issued outside China, helping the yuan become popular among international investors, and possibly ultimately a reserve currency.
Look out for further measures, says Lex in the FT, such as higher limits on domestic citizens’ foreign-exchange quotas and letting foreigners into its nascent domestic bond markets. China’s “gradual… currency liberalisation” continues.