The People's Bank of China is doubling the size of the yuan's trading band, another step in its internationalisation. Beijing is also hoping that by making the currency more flexible it can deflect criticism from trading partners that it manipulates the yuan.
From tomorrow, the yuan will be permitted to trade within a 1 per cent daily band, the central bank said in a statement on its website yesterday. The bank last widened the trading band in May 2007, when it went from 0.3 per cent to 0.5 per cent.
The bank will not intervene in the currency as long as it goes up or down within the pre-set trading band. That means from tomorrow, the yuan can rise or fall by 1 per cent on any trading day.
The move comes just a few days before the International Monetary Fund and the Group of 20 hold talks in Washington, where China could come under pressure, especially from the United States, to let the yuan appreciate. The US Treasury was scheduled today to issue its semi-annual report to Congress on currencies, which is watched for signs of which countries the US believes are manipulating their currencies for unfair trade advantage. But the report's release was delayed.
The yuan has risen almost 30 per cent against the US dollar since 2004, but US politicians still argue that Beijing has manipulated the currency to keep it undervalued and make the country's exports more competitive. Despite the yuan reaching an 18-year high in February of 6.2884 yuan to the dollar, US President Barack Obama's administration and certain US politicians complain that the yuan remains weaker than they say it should be. The yuan ended last week at 6.3030 to the US dollar.
Kenny Lee Yiu-sun, chief executive of First China Securities in Hong Kong, said: 'Political pressure is one of the factors that led the PBOC to widen the trading band, as now China can claim it is moving forward to let the yuan be traded more freely than before. The doubling of the yuan's trading band will help shut the mouths of some US politicians who always complain that China is manipulating the currency.''